Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas, discussed his opposition to what he has dubbed the 'Buzz Lightyear' monetary policy of the Fed – pledging to hold the federal funds rate at zero seemingly to infinity and beyond.
Other than the Federal Reserve’s initial quantitative easing program to underpin the recovery in the housing market through an initial tranche of mortgage-backed securities purchases, Fisher has opposed all other large-scale asset purchases and QE programs.
"I fully understand its theoretical underpinnings. But I question its efficacy," Fisher said.
While Fisher questions a continuation of the current program of QE and more QEs down the road, he believes with the program now in place it would shake up the markets to suddenly withdraw it.
"But now that we have them in place, and the fixed-income and stock markets are hooked on the monetary Ritalin that we have dispensed in ever-larger doses, it would, in my opinion, do great harm to force a sudden withdrawal," Fisher said.
Thus, Fisher said the best way to wind down QE is to taper the program's dosage so that markets can adjust gradually to the eventual removal of this treatment and return to pricing securities on the basis of fundamentals.
In regards to the housing market, Fisher says the Fed managed to meet its goal of reinvigorating the housing market.
"The fact that the housing-market gears have now begun to mesh is why I believe we are running the risk of overkill by continuing our mortgage-backed securities purchase program at the current pace and would suggest tapering off those purchases," Fisher explained.
Overall, the Fed’s bond-buying programs are not working, benefiting the wrong people and may even be counterproductive, Fisher said.
"Although accommodative monetary policies may increase certain types of risk-taking, in the present circumstances they also serve in some ways to reduce risk in the system, most importantly by strengthening the overall economy, but also by encouraging firms to rely more on longer-term funding, and by reducing debt service costs for households and businesses," Bernanke said.