Fed's Fisher warns of potential U.S. housing bubble, MBS buys

Thu Oct 17, 2013 1:58pm EDT
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By Jonathan Spicer

NEW YORK (Reuters) - A top Federal Reserve official said on Thursday he is seeing fresh signs of a U.S. "housing bubble" and warned about the central bank's ongoing purchases of mortgage-based bonds.

"I'm beginning to see signs not just in my district but across the country that we are entering, once again, a housing bubble," Dallas Fed President Richard Fisher told reporters after a speech in New York. "So that leads me ... to be very cautious about our mortgage-backed securities purchase program."

A mortgage-market bubble in part caused the 2007-2009 financial crisis and Great Recession from which the world's largest economy is still recovering. In response, the Fed has depressed interest rates and is buying $85 billion in assets each month, including $40 billion in mortgage-backed securities (MBS).

Fisher, a vocal hawk on monetary policy, repeated he would not support a reduction in the quantitative easing (QE) program at a Fed meeting later this month in large part because of the fiscal "mess" in Washington.

But citing rising year-on-year house prices in Texas cities, and elsewhere in the country, he warned that the central bank's hyper-accommodative policies could be inflating dangerous asset price bubbles.

Home resales rose in August and median prices were up 14.7 percent over the previous 12 months, according to the National Association of Realtors, although other data have suggested a sharp rise in mortgage rates has dented the housing recovery.

"We have to be watchful and realize there has historically been an era of the Fed over-stimulating" since the Great Depression, Fisher said.

"I worry we are following that tradition now," he added on the sidelines of a meeting of the New York Economic Club. "No one knows when the bubble pops. But I would argue that ... with each dollar we buy in Treasuries and mortgage-backed securities, we're getting closer to the tipping point."   Continued...

An empty mail box is seen at the front door of a foreclosed house in Miami Gardens, Florida in this September 15, 2009 file photo. REUTERS/Carlos Barria/Files