The U.S. Federal Reserve must reverse its super-easy monetary policy or risk fueling runaway prices, a top Fed official known for his hawkish views on inflation said Monday.
"There's enormous liquidity in the system," said Dallas Federal Reserve Bank President Richard Fisher, a voting member this year of the Fed's policysetting panel. "We need to tighten policy or give rise to inflationary forces."
The Fed has kept interest rates near zero for two and a half years, and has bought more than $2 trillion in long-term securities to push borrowing costs still lower and help pull the U.S. economy from its worst recession since the Great Depression.
With recent economic data falling short of expectations, the Fed is not expected to start raising rates until late next year, based on trading of short-term U.S. interest rate futures at the Chicago Board of Trade.
Fisher did not say when he believes the Fed should start removing accommodation, although several of his more hawkish colleagues have called for tightening as soon as this year. The Fed's policysetting panel meets next week.
Fisher repeated earlier comments that the U.S. central bank has done its job and should not add any further stimulus.
On that view even the Fed's more dovish members concur, saying the bar is very high for further bond-buying. The Fed is set to complete a $600 billion round of Treasury buying this month, and Fed Chairman Ben Bernanke last week gave no suggestion he would call for further purchases.
Fisher repeated his view that it is up to Congress to keep the recovery on track by clarifying the outlook for tax policy and regulation. It also will help, he said, when growing demand becomes more obvious.
"Our job is not to propel the economy all by ourselves. Our job is to provide the fuel, but not to flood it, so as to create inflation," Fisher said.
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