Fed hawks unite in call to retreat from mortgage stimulus

Thu May 16, 2013 2:51pm EDT
 
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By Kristen Hays and Francesca Landini

HOUSTON/MILAN (Reuters) - A trio of hawkish regional Federal Reserve officials are calling for the central bank to stop buying mortgage-backed bonds, citing recent improvement in the housing market.

Richard Fisher, president of the Dallas Federal Reserve Bank, was the latest to point to the recent pick up in home values and housing construction as signs the central bank's purchases of mortgage-backed securities are no longer needed.

"We can rightly declare victory on the housing front and (reduce) our purchases, with the aim of eliminating them entirely as the year wears on," Fisher told the National Association for Business Economics on Thursday in Houston. "I believe the efficacy of continued purchases is questionable."

His thinking leaves him in a minority at the central bank. Regional Fed presidents rotate into voting seats on the policy-setting Federal Open Market Committee while board members, who tend to be more sanguine about the effectiveness of the Fed's bond-buying stimulus, are permanent voters.

That means Chairman Ben Bernanke generally leads the way, and he still appears reluctant to take the foot off the accelerator with the recovery still fragile and inflation now heading lower.

Speaking in Milan, Philadelphia Fed President Charles Plosser said the central bank should dial back its asset buying starting next month given an improving economic backdrop.

"Things are better enough for the Fed to slow the pace of purchasing, if we are really serious about the fact that (the purchase program) is scalable," he said.

In a speech late on Wednesday, Richmond Fed President Jeffrey Lacker offered much the same message.   Continued...

 
Federal Reserve Bank of Dallas President Richard Fisher speaks about the concept of breaking up 'too big to fail' banks to a breakout group at the Conservative Political Action Conference (CPAC) in National Harbor, Maryland, March 16, 2013. REUTERS/Jonathan Ernst