TORONTO — The Federal Reserve is poised to evaluate and potentially make changes to its massive monetary stimulus, a top Fed official who is critical of the Fed’s bond-buying program said on Tuesday.
To counter the financial crisis, the Fed dropped short-term interest rates to zero in late 2008 and has since bought more than $2.5 trillion in bonds to bolster what has been an anemic economic recovery. Financial markets have been increasingly on edge on expectations that the Fed is ready to start scrolling back on its stimulus.
“The plot now thickens,” Richard Fisher, president of the Dallas Federal Reserve Bank, said. He likened developments in the Fed’s monetary policy to a Shakespearean play starring a “daring captain,” Fed Chairman Ben Bernanke, steering the ship of the U.S. economy.
“Act IV, just beginning, will involve the drama of introspection, with the FOMC evaluating the utility of its navigational tactics, and, perhaps, fine-tuning them, if not altering the course,” Fisher said, referring to the Fed’s policy-setting Federal Open Market Committee, in remarks prepared for delivery to the C.D. Howe Institute Directors’ Dinner in Toronto.
“Only time will reveal the efficacy of current policy and whether the risks that I and more experienced observers like Paul Volcker fret over are as substantial as we surmise, or whether we have made much ado about nothing,” he added. Volcker was the chairman of the Fed from 1979 to 1987.
Fisher is a longtime critic of the Fed’s current bond-buying program, the Fed’s third round of quantitative easing, known as QE3. He argues it has done little to help the economy and poses a risk of doing great harm. Last week Volcker, who led the U.S. central bank’s aggressive battle against inflation, also sounded a warning on QE3, saying that central banks are often too late in removing stimulus.
