Dallas Federal Reserve President Richard Fisher said on Tuesday that the winding down of the Fed's accommodative monetary policies needed to start as soon as the economy shows convincing signs of traction.
When it comes time to tighten monetary policy, my colleagues and I will move with an alacrity that, if needed, will be equal in speed and intensity to that with which we pursued monetary accommodation, Fisher said in a speech to the Texas Christian University Business Network of Dallas.
Fisher's suggestion of a swift reversal in policy echoed comments made last week by Fed Governor Kevin Warsh.
Since then, financial markets have started to anticipate more aggressive increases to the Fed's target interest rates, which have been set near zero since December 2008.
Derivatives prices suggest the fed funds rate will be raised to 0.75 percent by mid-2010.
The policymaker did not hint at when the Fed's policies will start to be reversed but he expressed cautious optimism about the economy in general and the housing market in particular.
There is some concern that the hope for a housing rebound could succumb to the headwinds experienced earlier if the efforts of fiscal and monetary authorities are allowed to expire. Yet, that said, there is, in my opinion, a limit to the life support that can be provided, he said.
The market for housing will not become truly robust until market forces replace government support, Fisher said.
We have thus indicated to the marketplace that, for our part, the FOMC expects we will complete the execution of our $1.25 trillion intervention in the mortgage-backed securities market by the end of the first quarter of next year.
Fisher is not a voting member of the Federal Open Market Committee in 2009.
(Editing by James Dalgleish)