Fed's Fisher says tighter policy makes sense on jobs data

The Federal Reserve is moving closer to a period where reversing its accommodative policies "makes a lot more sense" as the unemployment rate falls, said Federal Reserve Bank of Dallas President Richard W. Fisher.

Job figures showing that unemployment declined in March to 8.8 percent "are good numbers," the regional bank chief, who votes on monetary policy this year, said to reporters after a speech Friday in Dallas. "We have, in my opinion, a self-sustaining economy."

The jobless rate has dropped nearly a percentage point in the past year, from 9.7 percent in March 2010. It fell to a two-year low last month, with payrolls increasing by 216,000, the Labor Department said Friday in Washington. Traders increased bets that policy makers will boost borrowing costs this year.

"We are clearly in an economic juncture where normalization makes a lot more sense," he said after remarks to the Real Estate Council. "Before you tighten you have to stop accommodating," and "I will be upfront and center when the time comes to tighten," Fisher said.

Fed funds futures show a 43 percent chance the central bank will increase its target at the December 2011 meeting, compared with 35 percent odds Thursday.

Fisher declined to respond to comments made Thursday by colleague Narayana Kocherlakota, head of the Minneapolis Fed, who said policy makers may need to lift the target rate for overnight loans between banks by more than 50 basis points later this year if his inflation forecast holds out.

'Formulaic Solutions'

"I'm not going to get into formulaic solutions," Fisher said. Yet "monetary policy has to stay ahead of the curve."

Recent economic data reflect "good news" and "the key to me is not overstaying our welcome," he said.

The Fed is purchasing $600 billion in Treasury securities through June as part of a second round of quantitative easing to help the economy. Policy makers are continuing to review the efficacy of the program, and a third round "will not happen, barring some unforeseen macroeconomic debacle," the Dallas Fed president said.

The Fed's emergency programs in response to the financial crisis were successful in helping the economy and now the central bank is at risk of overdoing it, Fisher said in his remarks to the Real Estate Council.

The central bank "opened the floodgates" and "it worked," he said. "We reliquefied the economy. In my opinion, we might have done too much."

Kocherlakota, in an interview published Friday in the Wall Street Journal, said he is expecting a "big upward movement" in inflation, excluding food and energy, and that it's "certainly possible" the fed funds rate will need to rise this year.

Fisher told reporters that an "inflationary dynamic" is building worldwide. "The question is, 'How much pricing pressure is there?'"