Fed's Fisher: Need Definitive, Set Path for LSAP Taper

COLLEGE STATION, Texas — Dallas Federal Reserve Bank President Richard Fisher said Thursday he supports a definitive path for scaling back large scale asset purchases once the Fed's policymaking committee makes the decision to start tapering.

"We should define a very clear path, that once we start tapering - absent some major disruption or something that comes out of the blue - there is a definite path to when we reach zero," Fisher said, repeating his frequently stated position at a community Dallas Fed event at Texas A&M University.

Fisher, who will vote on the Federal Open Market Committee next year, added that he would suggest a definite monthly amount to reduce purchases "so the market will understand exactly where we are."

The central bank is currently buying $85 billion in Treasury and mortgage-backed securities each month to try and reach its dual mandate of price stability and maximum employment.

The decision to pull back on purchases is data dependent, Fisher stressed once again, reiterating the view of most of his colleagues.

"My sense is the economy is doing increasingly better," he told reporters after the event.

Fisher said GDP report, which revised economic growth up to a 3.6% pace in the third quarter, was a move in the right direction. While admitting that some of the upward revision was due to a buildup in inventories, he said "it's setting up to be a pretty nice year for next year, at this junction."

Fisher called the ISM manufacturing and service numbers "pretty robust" and said "we saw pretty good housing numbers."

But he also cautioned that, from a consumer spending standpoint, Black Friday sales may have been a little worse than expected with a retailers having to make a lot of discounts to keep cash registers ringing through the holidays.

Asked by MNI whether financial market reaction to a Fed decision to taper is taken into account by policymakers, Fisher said no.

"The mandate is not to make the rich richer," he said. "The mandate is to conduct monetary policy so as to achieve full employment."

And, "I believe there's plenty of money sitting on the sidelines right now. The problem is the fiscal side and the regulatory side. I personally do not think we need more quantitative easing. What we need more of is greater clarity on the fiscal and regulatory side.

"We work for the real economy," he said. "The markets have been given the greatest gift ever from the Federal Reserve ... That's not our job. Our job is to work on behalf of the American worker and American citizen."

Fisher told the group of Texas business executives that it was the federal government's fiscal problems and uncertainty that was holding back growth.

He likened the economy to a car, with the Fed providing plenty of fuel only to have growth hamper by Washington throwing sand in the engine block. "We've been stepping on the gas pedal, but someone is pulling on the brake," he said.

Fisher, who has been pretty outspoken about the impact of the government on economic growth, said U.S. fiscal policy is worse than Mexico.

"If we can just provide some clarity to the job creators of America, they will borrow," Fisher said, adding "just need the starting gates open."

The Dallas Fed president also said there are consequences associated with continuing the Fed's easy money policy. "People are reaching for risk," he said.

He said he is against moving the unemployment thresholds for moving the Fed funds rate from its zero lower bound. A research paper by Federal Reserve economists seemed to support the idea of lowering the threshold to 5.5% from the current 6.5% unemployment.

"I'm against them," Fisher said. "And the reason is when you say you are going to do something you should stick with it, and if you change you are going to start confusing the marketplace."

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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