Fisher says fiscal discord weakens argument for tapering Fed QE

Federal Reserve Bank of Dallas President Richard Fisher, who has consistently called for reducing record stimulus, said fiscal discord has undermined the argument for tapering the Fed’s $85 billion in monthly bond purchases.

Talk of cutting bond purchases has “all been swamped by fiscal shenanigans,” Fisher told reporters today after a speech to the Economic Club of New York. He will hold a vote on monetary policy next year.

A deadlock over the federal budget led to a 16-day partial shutdown of the government that Congress voted to end yesterday. Lawmakers didn’t show they’re any closer to resolving the basic issues of spending priorities and deficit-reduction measures, particularly in the U.S. House where a shrinking political middle makes compromise elusive as the latest events show.

The focus now shifts to a new series of deadlines -- the first for budget negotiations with a Dec. 13 target -- that set up more rounds of political combat over taxes and spending on programs including Social Security and Medicare. The agreement ending the shutdown funds the government at Republican-backed spending levels through Jan. 15, 2014, and suspends the debt limit through Feb. 7.

“Given all of the uncertainty,” it’s hard to argue to “change course” on monetary policy, Fisher said. “My view will be to stay the course” of accommodation at the Oct. 29-30 meeting of the Federal Open Market Committee in Washington, he said.

The government suspension shaved at least 0.6% from fourth-quarter 2013 gross domestic product growth, or took $24 billion out of the U.S. economy, Standard & Poor’s said yesterday.

Fisher said he sees indications “across the country” that housing prices are becoming too high and the U.S. is creating “once again, a housing bubble.” That makes him “very cautious about our mortgage-backed securities purchase program,” he said, referring to the Fed’s monthly purchases of $40 billion in mortgage bonds.

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