Fed officials at odds over when to cut bond buys

EL PASO, Tex./STONE MOUNTAIN, Ga., April 10 (Reuters) - The Federal Reserve should start cutting back on purchases of housing bonds as soon as its next meeting, one top Fed official said on Wednesday, just hours after another said talk of trimming the U.S. central bank's bond buys was "premature."

The divergent views, the former from inflation hawk Dallas Fed President Richard Fisher and the latter from policy centrist Atlanta Fed President Dennis Lockhart, are emblematic of a split also on display in minutes of the Fed's latest policy-setting meeting.

At that meeting, on March 19 and 20, Fed officials appeared to be nearing a decision to start winding their bond purchases down, with "several" policymakers expecting to halt the buying altogether by the end of the year. [ID: L2N0CX0RV]

The minutes, which depressed U.S. bond prices, revealed an intense discussion and several disagreements among the Fed's 19 policymakers about carrying on with buying $85 billion in Treasury and mortgage bonds per month to stimulate the economy.

On Wednesday, Fisher, a long-time and vociferous opponent of the Fed's super-easy monetary policy, made his most specific comments yet on his preferred policy path, saying the housing market is showing signs of speculation and does not need any further stimulus from the U.S central bank.

But he argued the Fed should wait on trimming its purchases of federal debt until it is more certain about how Congress plans to approach the budget.

Fed policymakers worry that if Congress tightens fiscal policy too much, economic growth could suffer.

Fisher said he would prefer the Fed end both bond-buying programs by the end of the year, and cutbacks in mortgage-backed securities purchases to start as soon as the Fed's next meeting, April 30-May 1.

"I think we could start tapering back significantly and ending by year end, certainly our mortgage-backed securities program, and maybe even ending it earlier," he told reporters after a speech in the West Texas border town of El Paso.

Across the continent, at the Atlanta Fed's conference in Stone Mountain, Georgia, Lockhart said it is too soon for the Federal Reserve to begin considering a tapering off or a halt to its bond-buying stimulus program

"A lot of focus on that at the moment is maybe a bit premature," Lockhart told reporters during a press briefing on the sidelines. "We have to wait and watch how the data come in and see how the economy evolves." [ID: L2N0CX0KX]

EYE ON THE JOBS MARKET

Lockhart, who has said he sees the U.S. economy expanding between 2 percent and 2.5 percent this year, said he was disappointed by a weak reading on the jobs market for March. However, he added that it was important not to read too much into a single month's data.

Employers hired at their weakest pace in nine months in March, shocking economists and leading some to predict a later-than-expected end to QE3.

Fisher too said reading too much into the recent jobless report was a mistake, and pointed to the prior months of strong jobs growth.

But unlike Lockhart, whose views are likely more in line with those of Fed Chairman Ben Bernanke, Fisher emphasized the risks of longer-term inflationary consequences.

"Those after-effects will depend on how artful the committee will be in unwinding that accommodation on a timely basis," he said, referring to the Fed's policy-setting Federal Open Market Committee, which meets about every six weeks.

Neither Fisher nor Lockhart are voting members of the panel, but both participate in the policy-setting discussion, which in March was marked by a deep dive into the costs, risks and benefits of the Fed's current round of so-called quantitative easing.

The buying, along with two prior asset purchase programs, has swollen the Fed's balance sheet to more than $3 trillion, from well under $1 trillion before the 2007-2009 financial crisis.

The Fed has said it will continue to buy bonds until it sees a substantial improvement in the labor market outlook, and will hold short-term borrowing costs near zero until unemployment falls to at least 6.5 percent, as long as inflation remains in check.

In El Paso, Fisher saved a few stinging words for "foreign lands" like Washington, D.C., blaming lawmakers for failing to tackle the nation's fiscal problems, provide certainty on taxes and spending, and craft regulation so businesses will be moved to hire more workers.

His stinging assessment came just hours after President Barack Obama proposed a $3.77 trillion budget aimed at kick-starting deficit-reduction talks with Republicans, something that drew immediate criticism from both parties. [ID: L2N0CX03W]