January 12, 2011 / 6:32 PM / 10 years ago

Fed's Fisher: U.S. asset-buying has reached a limit

NEW YORK (Reuters) - The U.S. Federal Reserve should stop expanding its already bloated balance sheet, a top Fed official said on Wednesday, adding he voiced strong concerns about the U.S. central bank’s $600-billion bond-buying program when it was decided in November.

Richard Fisher, president of the Federal Reserve Bank of Dallas, answers a question from the audience after delivering the 2009 Albert H. Gordon Lecture about the current financial crisis at the John F. Kennedy School of Government at Harvard University in Cambridge, Massachusetts February 23, 2009. REUTERS/Brian Snyder/Files

“Barring some unexpected shock to the economy or financial system, I think we have reached our limit,” Dallas Federal Reserve Bank President Richard Fisher said in remarks prepared for delivery to a Manhattan Institute luncheon. “I would be wary of further expanding our balance sheet.”

The Fed embarked on its latest round of Treasury securities purchases in November, a controversial “quantitative easing” plan known as QE2 that is meant to kick-start the slow U.S. economic rebound.

Fisher, an inflation “hawk”, rotates into a voting slot on the Fed’s policy-setting panel this year.

It was unclear from his prepared remarks whether he was opposed to yet another round of bond-buying, or was advocating that the current program be cut short.

In the past, Fisher questioned the efficacy of QE2, but this week said in a published interview that he expected the program to run its course through the end of June.

In his Wednesday speech, Fisher said he expressed “strong concern” about QE2 at the Fed’s Nov. 3 meeting, noting there are limits to the central bank’s monetary actions.

Since then, he said, “recent data make clear that the risks of a double-dip recession and deflation have ebbed and that economic growth and job creation are beginning to flow.”

Critics of QE2 warn it lays the groundwork for a sharp ramp-up in inflation, and say it could lead to asset bubbles in unexpected areas of the economy.

The unemployment rate fell to 9.4 percent last month, a still-high level that’s well above what most Fed officials see as healthy. Data have also shown a boost in U.S. consumer spending and trade, and a drop in jobless benefit claims, suggesting the world’s biggest economy is on the mend.

But the recovery is slow. The economy generated fewer jobs than expected last month, and revealed a troubling rise in the number of people exiting the workforce — some credence for “dovish” backers of QE2.

Core inflation is running at about 1 percent, down from 2.5 percent before the recession triggered by the financial crisis.

Fisher, in his first public speech of the year, said investment in new jobs remained slow. He repeated that it was up to what he called a newly elected “radical” Congress — not the Fed — to make the fiscal and regulatory decisions needed for job creation.

QE2 put the Fed into a tricky political spot, Fisher said. “By this action, we have run the risk of being viewed as an accomplice to Congress’ fiscal nonfeasance.”

Some argue the Fed should begin as early as this year in rolling back its unprecedented stimulus.

Fed officials in recent days have begun to detail their stance for the new year, with many rallying behind QE2 before Fed Chairman Ben Bernanke convenes the first Fed policy meeting this year on Jan. 25-26.

Reporting by Jonathan Spicer, Editing by Chizu Nomiyama

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