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Fisher Says QE Would End in October Based on Current Taper Pace

April 04, 2014

Federal Reserve Bank of Dallas President Richard Fisher predicted the Fed will end bond purchases in October if it continues to taper buying at the current pace.

“At the current reduction in the run rate of accumulation, the exercise known as QE3 will terminate in October,” Fisher said today in Hong Kong, referring to the third program of bond purchases known as quantitative easing.

Even as the Federal Open Market Committee trims stimulus, “yellow lights” in markets suggest investors are taking on excessive risk and may jeopardize financial stability, Fisher, who votes on policy this year, said in remarks prepared for a speech. In three meetings since December the FOMC has reduced monthly bond purchases in $10 billion increments to $55 billion.

With U.S. credit markets “awash in liquidity,” potentially unsustainable stock-market valuations and bond yields “give rise to caution” and must be closely monitored, said Fisher, 65. Bond buying has pumped up Fed assets to a record $4.24 trillion.

“We have a liquidity pool that is more than sufficiently deep and wide enough nationwide to finance job-creating capital expansion and reduce labor market slack,” Fisher said to the Asia Society Hong Kong Center, warning about “raising the ghost of irrational exuberance.” He said he is “more than supportive” of the decision to taper bond buying.

Record Lows

Warning of market risks, Fisher cited rising stock market capitalization relative to economic output and a high level for a measure of U.S. equity market valuation based on an inflation-adjusted price-earnings ratio. He also referred to high levels of margin debt and junk-bond yields nearing record lows.

Fed Chair Janet Yellen said in a March 31 speech the world’s biggest economy will need stimulus for “some time,” easing investor concern that interest rates may rise earlier than previously forecast. She said the Fed hasn’t done enough to combat unemployment even after holding rates near zero since December 2008 and expanding the balance sheet to a record.

The next FOMC gathering is scheduled for April 29-30 in Washington. Minutes from the last meeting are scheduled for release next week.

The Standard & Poor’s 500 Index advanced to a record 1,890.90 on April 2 after a report showing companies added to payrolls last month fueled optimism on economic growth.

Highest Level

The equities benchmark climbed 1.3 percent in the first three months of 2014, its fifth consecutive quarterly advance, and now trades at 17.4 times reported earnings. That’s the highest level since 2010 and 11 percent above its five-year average, according to data compiled by Bloomberg.

Companies boosted payrolls in March by 191,000, the most in three months, according to the ADP Research Institute. A Labor Department report due at 8:30 a.m. New York time will show the economy added 200,000 jobs last month, according to the median of economist estimates in a Bloomberg survey.

“The Fed is working to harness monetary policy to relieve the plight of the cyclically unemployed,” Fisher said. “But we also need to be vigilant in making clear that we are obligated to maintain price stability and that allowing inflation to take grip is a cardinal sin for a central bank, for it is the cruelest of afflictions for all of society.”

To contact the reporter on this story: Jeff Kearns in Washington at

To contact the editors responsible for this story: Chris Wellisz at James L Tyson, Mark Rohner

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