Tapering Fed's bond buys could help housing: Fed's Fisher

Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas, speaks during a conference before the Committee for the Republic Salon in Washington

Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas, speaks during a conference before the Committee for the Republic Salon at the National Press Club in Washington January 16, 2013. REUTERS/Jose Luis Magana

By Ann Saphir

updated 3/7/2013 5:29:56 PM ET

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(Reuters) - Slowing the Federal Reserve's current pace of monthly asset purchases could paradoxically help the U.S. housing market, a top Fed official said on Thursday.

"The housing market is getting to be quite strong. It's quite possible, in my view - and this is my personal opinion - that a little tapering there would actually make people realize that we've bottomed out on the interest rate cycle," Dallas Fed President Richard Fisher told Fox Business News. "I think you'd actually see more activity than you are currently seeing."

Fisher in the past has said that the Fed's super-easy monetary policy may actually deter borrowing because consumers can continue to count on low borrowing costs far into the future.

The Fed has been buying $40 billion in mortgage-backed securities and $45 billion in Treasuries each month to push down longer-term borrowing costs and encourage businesses to boost hiring.

That's on top of vowing to keep short-term interest rates at rock bottom until the unemployment rate falls to at least 6.5 percent, as long as inflation stays under control. Unemployment is currently at 7.9 percent.

Fed Chairman Ben Bernanke and several other influential members of the Fed's policy-setting committee have argued that the benefits of the bond-buying program clearly outweigh possible costs.

But Fisher has been among the minority who have emphasized the risks of continuing to add to the Fed's balance sheet, now at a record $3.091 trillion.

"The issue to me is, how do we get out of this huge expansion of our balance sheet, and what will be risks that we run in doing so as interest rates come up and the economy improves," he said Thursday.

Even as he credited the Fed's bond-buying program with helping pull the housing market out of its post-recession slump, he called for ratcheting it back and letting "natural" forces take hold.

"I'm not talking about cutting off the purchases, just tapering it down so we have less accommodation than we have now," he said.

(Reporting by Ann Saphir)