Richard Fisher, president of the Federal Reserve Bank of Dallas, said further bond purchases would do little to aid the U.S. economy while fueling perceptions the central bank is encouraging government spending.
“I believe that were we to go down the path to further accommodation at this juncture, we would not simply be pushing on a string but would be viewed as an accomplice to the mischief that has become synonymous with Washington,” Fisher said in a speech at the University of St. Andrews in Scotland.
The Fed purchased $2.3 trillion of securities in two rounds intended to lower long-term borrowing costs and spur employment. In September, it started a program to lengthen the maturities of the assets on its balance sheet, known as Operation Twist.
Fisher dissented twice last year against moves to push down long-term borrowing costs and to keep the benchmark U.S. interest rate near zero until at least mid-2013. He voted five times in 2008 in favor of tighter monetary policy. He doesn’t vote on policy this year.
“There is a growing sense that we are unwittingly, or worse, deliberately, monetizing the wayward ways of Congress,” said Fisher, 63. He said investors are concerned the Fed has “already expanded its balance sheet to its stretching point.”
Responding to audience questions, Fisher expressed doubts about Operation Twist, which expires at the end of this month. Under the program, the Fed sold $400 billion of Treasury securities with maturities of three years or less and used the proceeds to buy $400 billion of Treasuries with maturities of six years or more.
Sending a Signal
“It’s time for the market to send us a signal what the price of debt should be,” Fisher said. He said measures including Operation Twist are “distorting the price.”