Fed's Fisher - Expects first rate hike in the spring

Friday, September 19, 2014

(Reuters) - The Federal Reserve should start raising U.S. interest rates in the spring, earlier than many investors currently expect, and should do so both slowly and gradually, a top Fed official said on Friday.

"I personally would want to see, the date of our first move, I personally expect it to occur in the spring and not in the summer as it seems the markets are discounting," Dallas Federal Reserve Bank President Richard Fisher said in an interview on Fox Business Network.

Already there are signs of financial excess in markets, he said, and although inflation currently is not a problem, continued low rates could spark unwanted price pressures.

Waiting too long to raise rates could ultimately force the Fed to raise them sharply, he warned, potentially driving the economy into another recession.

Fisher indicated he believed rates should move up in quarter-point increments.

Fisher, who was one of two dissenters at the Fed's policy meeting this week, said he was already seeing wage-price pressures in his home state of Texas, and warned the same thing could happen nationally as the unemployment rate, now at 6.1 percent, continues to fall.

That's not a view that's widely held at the Fed, which on Wednesday reiterated its plan to keep rates near zero for a "considerable time" after it ends its bond-buying stimulus next month.

Fed Chair Janet Yellen said the Fed's policy-setting committee was comfortable with that statement. Markets continue to price in a first rate rise in mid-2015.

Fisher said Friday was seeing financial excess in markets, particularly in high-yield bonds.

“I think we’ve levitated the markets,” he said. "I don't want to drive this any further, and I think we have to be aware of this."