FRANKFURT (MNI) – There will be no need for further monetary
accommodation in the United States once the Federal Reserve’s current
round of quantitative easing, known as QE2, runs out in June, Dallas Fed
President Richard Fisher asserted on Tuesday.

Fisher, speaking at a conference here, also emphasized that he is
by no means a fan of QE2.

“In essence what we have done as a central bank is to monetize the
entire US debt through the end of June,” he lamented. “Had I been a
voter last year, which I am this year, I would have joined [Kansas City
Fed President Thomas] Hoenig and would have voted against what is known
as QE2.” It is “indisputable” that “there is plenty of fuel” for
American businesses to invest and get people back to work, he said.

“In my opinion, no further accommodation is needed after June —
either by tapering off the bottom of the purchases of treasuries, or by
adding another tranche of purchases outright,” Fisher stressed. To
continue accommodative policy would be to “continue the injustice
against the virtuous,” he said, referring to savers whose money would be
eroded by rising inflation.

Arguing that the recovery in the United States is “sustainable” and
“self-propelling,” Fisher added in a television interview with CNBC
after his conference appearance that it is “in my view unlikely that we
will have or need more accommodation by the central bank…I think we’ve
done our job.”

“I think we should let the economy proceed on its own steam,” he
continued. “We are all mindful” of the rising price pressures. “Speaking
personally, I am concerned,” he added, saying pointedly that he agreed
with ECB President Jean-Claude Trichet, who has called for “strong
vigilance” in the face of rising price pressures.

Fisher would not be drawn in to a specific discussion as to when
the Fed would start to tighten. He noted that the “yield curve has
steepened and a significant part of the steepening has to do with the
economy gathering strength.”

“I think that the markets will dictate interest rates, particularly
further out on the yield curve,” he said. “We have said publicly that we
will hold the short-end of the yield curve at these low rates for a
great deal of time. We expressed that almost consistently in our
reports…I expect that is likely.”

But hiking short-term rates is not the only way the Fed could
reverse policy, Fisher reminded.

“We have substantial assets on our books. We could sell those
securities…We also could deal with the excess bank reserves on our
books,” he commented.

“We can work within the repo market..or with time deposits…I
think we have a very full tool kit…It gives us more options if and
when the time is right, and I won’t comment” on when the time is right.

Later, he told reporters, “I believe we certainly…need to
continue discussing exit policy, but before you can tighten you have to
stop accommodating. I think there are steps that you need to be
taking…I am not a huge fan of the zero rate, but that’s where we are.”

On the order of the exit, he said, “sometimes it does make sense to
undo what you did last, but the real question is what has the most
impact, and I think that needs to be considered at the right time, when
we’re ready,”

“But the real question now is, when do we stop accommodating, and I
think we are getting closer to that period.”

Asked about risks to monetary policy from the possible bankruptcy
of a state or municipality, Fisher was quick to remark that there are
“ways to deal” with such an eventuality that “do not involve monetary
policy.”

–Frankfurt bureau, +49-69-720142, tbuell@marketnews.com

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$$EC$]