Fed should reconsider 'considerable time' vow on rates: Fisher

[October 11, 2014]  DALLAS (Reuters) - The Federal Reserve should rethink its forward guidance, potentially ditching its promise to keep interest rates near zero for a "considerable time" after it ends its bond-buying stimulus, a top Federal Reserve official said on Friday

"I feel it is time to reconsider 'considerable time,'" Dallas Fed President Richard Fisher told reporters after a speech here. "I am not sure if it provides real guidance."

The central bank, which has kept short-term U.S. interest rates near zero since December 2008, uses the phrase "considerable time" in its policy statements to convey that even after it stops adding monetary stimulus through bond-buying, it will not immediately turn around and start raising rates.

Those two words may be a focal point at the Fed's next policy-setting meeting later this month, as policy-makers who want to raise rates sooner rather than later face off against those who counsel patience.
 

The central bank has never officially said how long a pause it envisioned. Fed Chair Janet Yellen signaled in March it could be around six months, and Fed Vice Chair Stanley Fischer said Thursday that it could be anywhere from two to 12 months. The Fed plans to finish its bond-buying stimulus program later this month.

Fisher joins several other colleagues, including the hawkish chief of the Philadelphia Fed, in urging a reworking of the guidance in the Fed's statement.

Other U.S. central bankers, including San Francisco Fed President John Williams, have said the phrase is still a useful signal to markets that the Fed is not about to start jacking up rates immediately.

Fisher, speaking in Dallas, said he is "pleased" with the current stability of prices, and wants neither deflation nor for inflation to rise more than briefly above the Fed's 2-percent target.

But he reiterated his discomfort with the Fed's super-easy monetary policy. The narrow gap between yields on risky corporate bonds compared with yields on Treasuries, seen as among the safest of assets, suggests "we may have overshot our mark," he told a group of teachers.

Labor market dynamics are improving and "not significantly experiencing any inflationary pressure," he said, adding that he expects economic growth to pick up over the next six months.

Fisher, 65, has a vote this year on the Fed's policy-setting panel, and plans to retire next year.

(Reporting by Jon Herskovitz, writing by Ann Saphir; Editing by Chizu Nomiyama)

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