MNI INTERVIEW: Ex-Fed Fisher: Fed Divided Over Balance Sheet

--Says Fed's Operations Are "Derivative Of QE", Boosting Assets

By Evan Ryser

     WASHINGTON (MNI) - The Federal Reserve looks increasingly divided over its

growing balance sheet and whether the Fed's operations and purchases are

bloating capital markets, former Dallas Fed President Richard Fisher said in an

interview with MNI.

     "Some members of the FOMC will be expressing concern about the growing

balance sheet and whether or not it's bloating or pumping up capital markets to

levels that are worrisome," said Fisher, former Dallas Fed President from 2005

to 2015.

     "If you trace what's happened to the S&P500 or the NASDAQ, since they

reached a low on the balance sheet of USD3.8 trillion and now they've expanded

to USD4.18 trillion, there's almost a hundred percent correlation with what's

happened in terms of asset prices," noted Fisher.

     "And that's something that they're worried about in terms of what they may

be causing and what they should do about it, if anything," Fisher said.

     Since September, when overnight funding markets briefly spiked, the Fed

started temporary liquidity injections, and in October commenced USD60 billion

in Treasury bill purchases per month. Chair Powell characterized it as a

technical move.

     Dallas Fed leader Robert Kaplan may have exposed an official split by

calling the Fed's actions a "derivative of QE" on Jan. 15 

     Fisher said he agreed with his successor's view.

     A well-known hawk, Fisher was wary of QE2 that ran from 2010 to 2011 and

voted against QE3, noting concerns that easy money would set the course for

excessive volatility and encourage market distortions.

     -- LOSING CONTROL OF THE YIELD CURVE

     Asked about yield curve control as a potential addition to the Fed's

toolkit as a result of the ongoing framework review, Fisher said: "I think the

Fed has lost control of the yield curve."

     "I don't think if they're realistic there should be any expectations that

the Fed really has much yield curve control," Fisher said. "The data indicates

it's pretty hard for them to have much control over the yield curve beyond a

year or two."

     In a speech in November, Fed Board Governor Lael Brainard's said the

central bank could potentially control yields out to two or three years. But

Fisher said: "I think it's less than that."

     -- FED BOARD NOMINATIONS

     Fisher sees President Donald Trump's nominations of Christopher Waller and

Judy Shelton as a way to stack the Board, just as President Ronald Reagan did

and other presidents have done before.

     While Christopher Waller is part of the Federal Reserve system and is

respected, Fisher said, Shelton will "probably have some issues" in the

confirmation process before the Senate due to her history of support for the

gold standard.

     A range of views is beneficial, Fisher noted, but that range usually occurs

between the Board versus regional bank presidents. These nominations and other

potential nominations down the road should President Trump win re-election raise

the possibility that Board governors might vote against the chairman. "Then that

could be disruptive in the marketplace."

--MNI Washington Bureau; +1 202 371 2121; email: evan.ryser@marketnews.com

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