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Exclusive: Fed's Fisher, vocal hawk, sees no QE cuts this month

Federal Reserve Bank of Dallas President Richard Fisher speaks about the concept of breaking up 'too big to fail' banks to a breakout group
Federal Reserve Bank of Dallas President Richard Fisher speaks about the concept of breaking up 'too big to fail' banks to a breakout group

By Jonathan Spicer, Ann Saphir and Pedro da Costa

NEW YORK (Reuters) - "Reckless" U.S. fiscal policy will likely force the Federal Reserve to stand pat on monetary policy this month, one of the Fed's biggest critics of the U.S. central bank's bond-buying program said on Tuesday.

Richard Fisher, the hawkish president of the Federal Reserve Bank of Dallas, said that the fiscal standoff means even he would find it difficult to make a case for scaling back bond purchases at the Fed's policy meeting on October 29-30.

"My personal opinion is that it's not in play," Fisher told Reuters on Tuesday. "This is just too tender a moment."

Lawmakers were working to strike a deal to avoid a government debt default ahead of Thursday's looming deadline for raising the government's borrowing authority.

A default by the world's biggest economy could throw financial markets into turmoil and undercut economic growth in the United States and around the world.

"I personally would have a hard time arguing for us to dial it back" this month, he said.

Even if lawmakers agree on a plan to avoid a near-term debt default by giving the U.S. government room to keep borrowing until early next year, "that doesn't solve the problem," Fisher said.

Worries about another government shutdown and another debt ceiling crisis in early 2014 led to lousy auctions for short-term U.S. debt on Tuesday. Demand for 3-month and 6-month Treasury bills was the lowest since 2009.

The Fed's purchase of $85 billion a month of Treasuries and mortgage-backed securities is meant to spur U.S. investment, hiring and economic growth.

Investors, encouraged by what many Fed officials had characterized as marked improvement in the labor market since the purchases began last September, were shocked when the Fed decided not to trim the program at its policy meeting last month.

Fisher said he still believes the Fed should have acted in September, in part to burnish its communications credentials.

But even as the threat of a debt default looms, Fisher sought to assure markets that the Fed would respond as necessary "to prevent market chaos."

The Fed acts in part as the government's agent in the marketplace.

"I'm more confident that we, my colleagues and I, are better prepared than we were in 2011," Fisher said. The U.S. government came within days of being unable to pay its bills in August 2011.

Fisher declined to give any details of the Fed's contingency plans. He spoke with Reuters at the start of a three-day blitz of public appearances in New York at which he is expected to call for a long-term resolution to the current U.S. fiscal standoff.

SMASHING THE INSTRUMENT PANEL

Fisher has long blamed the U.S. Congress and President Barack Obama for failing to hash out clear policy on future taxes, government spending and regulations, saying that without such clarity businesses will not undertake the hiring that the Fed's super-easy monetary policy is meant to encourage.

On Tuesday he took that argument a step further, arguing that fiscal "misfeasance" could drag the Fed down as well.

The United States is viewed as "increasingly reckless with our seigniorage," he said. "I don't know at what point the Fed comes to be viewed as an accomplice to that....this crisis heightens the scrutiny with which we will be watched."

More narrowly, he said, the government shutdown, which has prevented the release of a stream of critical economic data including September's unemployment rate, makes it hard for the Fed to simply do its job.

If the Fed and the fiscal authorities are together trying to fly the plane of the economy, he said, "they are pulling back on the brake, and then they take the axe out and smash the instrument panel."

Fisher said he expects U.S. economic data to be "sloppy" for a couple more months due to the partial government shutdown.

(Reporting by Ann Saphir, Jonathan Spicer, Pedro da Costa and Richard Leong; Editing by Chizu Nomiyama and Leslie Adler)

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