BERLIN, July 27 (Reuters) - The U.S. central bank must end its bond-buying programme quickly and an end to the programme was "in sight", a senior Federal Reserve official said in a German magazine on Saturday.
Fed Chairman Ben Bernanke jolted markets in late May with plans to ease back on stimulus efforts once the economy improves. The Fed is likely to reduce its monthly bond purchases later this year and stop them altogether by mid-2014, as long as the economic recovery unfolds as expected, Bernanke has said.
"We must make our exit from the bond-buying programme quick," Richmond Fed President Jeffrey Lacker, one of the Fed's most fiscally conservative officials and a persistent critic of the latest round of bond buying, said in WirtschaftsWoche.
"An end to these bond purchases came into sight at the latest Fed meeting," said Lacker, who is not among the Fed policymakers who will vote on monetary policy this year.
Lacker pointed to relatively low inflation and said a faster-than-expected fall in the U.S. jobless rate was sufficient to start winding down the programme.
"First of all we should end the monthly purchases of mortgage bonds as quickly as possible," Lacker said in the interview. It was not the central bank's role to give any sector preferential support, he said.
Lacker said the United States had made hardly any progress in cutting its debt and had instead only come up with temporary solutions for several months at a time.
He said he hoped the Fed's planned scaling back of bond purchases this year and rising interest rates would force the U.S. Congress to agree more quickly on reducing debt. "We need a sustainable solution and the sooner the better," he said.
Whoever takes the helm at the Fed when Bernanke's term as chairman ends in January 2014 must find a way to exit the bond-buying programme without shocking the markets, Lacker said.
He said the quantitative easing programme had done little to boost the economy, and the U.S. economy would grow by 2 percent this year and by no more than 2.25 percent next year - lower than the 2.8 percent in 2013 and 3 percent in 2014 forecast by other Fed policymakers - as consumers remain cautious.
Lacker said more needed to be done on drawing up rules to avoid future government bank rescues and said stress tests done in the United States were a step in the right direction.
Myth: The Fed actually prints money.
<a href="http://www.foxbusiness.com/industries/2012/08/17/chance-fed-printing-more-money-jumps-to-60/">People commonly say</a> that the Fed itself prints money. It's true that the Fed is in charge of the money supply. But technically, <a href="http://www.newyorkfed.org/aboutthefed/fedpoint/fed01.html">the Treasury Department prints money on the Fed's behalf</a>. Asking the Treasury Department to print cash isn't even necessary for the Fed <a href="http://www.huffingtonpost.com/2012/03/21/federal-reserve-profit-2011_n_1369354.html">to buy securities</a>.
Myth: The Federal Reserve is spending money wastefully.
Both CNN anchor <a href="http://www.huffingtonpost.com/2012/08/31/cnn-erin-burnett-federal-reserve-stimulus_n_1848210.html" target="_hplink">Erin Burnett</a> and Republican vice presidential nominee <a href="http://thinkprogress.org/economy/2012/09/07/813011/paul-ryan-jobs-qe/" target="_hplink">Paul Ryan</a> have compared the Federal Reserve's quantitative easing to government spending. But <a href="http://www.huffingtonpost.com/2012/03/21/federal-reserve-profit-2011_n_1369354.html">the Federal Reserve actually has created new money</a> by expanding its balance sheet. <a href="http://www.huffingtonpost.com/2012/03/21/federal-reserve-profit-2011_n_1369354.html">The Fed earned a $77.4 billion profit</a> last year, most of which it gave to the U.S. government.
Myth: The Fed is causing hyperinflation.
<a href="http://krugman.blogs.nytimes.com/2011/12/15/inflation-predictions/" target="_hplink">Some</a> <a href="http://www.businessinsider.com/niall-ferguson-has-been-wrong-on-economics-2012-8" target="_hplink">conservatives</a> <a href="http://www.businessinsider.com/ron-paul-is-putting-on-a-great-show-right-now-in-front-of-bernanke-2012-2">have claimed</a> that the Federal Reserve is causing hyperinflation. But inflation is actually at <a href="http://www.nytimes.com/2011/09/18/sunday-review/the-facts-on-the-fed.html" target="_hplink">historically low levels</a>, and there is no sign that is going to change. <a href="http://www.bls.gov/news.release/cpi.nr0.htm" target="_hplink">Core prices have risen</a> just 1.4 percent over the past year, according to the Labor Department -- below the Federal Reserve's <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm" target="_hplink">target of 2 percent</a>.
Myth: The amount of cash available has grown tremendously.
<a href="http://www.nytimes.com/2011/02/10/business/economy/10fed.html?_r=1">Some Federal Reserve critics claim</a> that the Fed has devalued the U.S. dollar through a massive expansion of the amount of currency in circulation. But not only is inflation low; <a href="http://www.businessinsider.com/the-animated-gif-of-boy-throwing-money-out-of-the-window-is-not-a-metaphor-for-qe-2012-9">currency growth also has not really changed</a> since the Fed started its stimulus measures, as noted by Business Insider's Joe Weisenthal.
Myth: The gold standard would make prices more stable.
<a href="http://www.businessinsider.com/ron-paul-is-putting-on-a-great-show-right-now-in-front-of-bernanke-2012-2">Rep. Ron Paul (R-Tex.) has claimed</a> that bringing back the gold standard would make prices more stable. But prices actually were much less stable under the gold standard than they are today, as <a href="http://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/"><em>The Atlantic's</em> Matthew O'Brien</a> and <a href="http://www.businessinsider.com/why-conservatives-like-the-gold-standard-2012-8">Business Insider's Joe Weisenthal</a> have noted.
Myth: The Fed is causing food and gas prices to rise.
<a href="http://www.huffingtonpost.com/2012/09/08/erin-burnett-federal-reserve_n_1866971.html">CNN anchor Erin Burnett claimed in September</a> that the Federal Reserve's stimulus measures have caused food and gas prices to rise. But many economists believe global supply and demand issues are influencing these prices, not Fed policy. And <a href="http://www.huffingtonpost.com/2012/09/08/erin-burnett-federal-reserve_n_1866971.html">there actually is no correlation between the Fed's stimulus measures and commodity prices</a>, according to some economists Paul Krugman and Dean Baker.
Myth: Quantitative easing has not helped job growth.
<a href="http://www.forbes.com/sites/michaelpento/2012/05/01/why-higher-inflation-destroys-jobs/">Some Federal Reserve critics</a> claim that the Fed's stimulus measures have destroyed jobs. But <a href="http://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm">the Fed's quantitative easing measures actually have saved or created more than 2 million jobs</a>, according to the Fed's economists. In addition, JPMorgan Chase chief economist Michael Feroli told Bloomberg last month that <a href="http://www.bloomberg.com/news/2012-09-10/bernanke-proves-like-no-other-fed-chairman-on-joblessness.html" target="_hplink">QE3 will provide at least a small benefit</a> to the economy.
Myth: Tying the U.S. dollar to commodities would solve everything.
<a href="http://articles.nydailynews.com/2012-08-16/news/33236684_1_monetary-policy-inflation-currency-debasement">Rep. Paul Ryan (R-Wis.) has proposed</a> tying the value of the U.S. dollar to a basket of commodities, in an aim to promote price stability. But <a href="http://www.theatlantic.com/business/archive/2012/08/forget-paul-ryans-budget-his-scariest-idea-is-about-the-federal-reserve/261066/">this actually would cause prices to be much less stable</a> and hurt the U.S. economy overall, as <em>The Atlantic's</em> Matthew O'Brien has noted.
Myth: Ending the Fed would make the financial system more stable.
<a href="http://www.amazon.com/End-Fed-Ron-Paul/dp/B004IEA4DM">Rep. Ron Paul (R-Tex.) claims</a> that ending the Federal Reserve and returning to the gold standard would make the U.S. financial system more stable. But <a href="http://www.bloomberg.com/video/should-the-u-s-return-to-the-gold-standard-wsDVrOKATTqyTaG5yBY1kQ.html">the U.S. economy actually experienced longer and more frequent financial crises and recessions</a> during the 19th century, when the U.S. was using the gold standard and did not have the Fed.
Myth: The Fed can't do anything else to help job growth.
<a href="http://www.nytimes.com/2011/07/31/business/economy/whats-with-all-the-bernanke-bashing.html">Many</a> <a href="http://www.guardian.co.uk/business/economics-blog/2012/jun/27/federal-reserve-runs-out-of-options">commentators</a> have claimed that there simply aren't any tools left in the Fed's toolkit to be able to help job growth. But <a href="http://www.bloomberg.com/news/2012-07-09/fed-harms-itself-by-missing-goals-stevenson-and-wolfers.html">some economists</a> <a href="http://www.boston.com/bostonglobe/ideas/articles/2011/08/28/the_i_word/">have noted</a> that the Fed could target a higher inflation rate to stimulate job growth. <a href="http://economix.blogs.nytimes.com/2012/04/25/bernanke-on-what-the-fed-can-do/">The Fed, however, has ruled this option out</a> -- for now.
Myth: The Fed can't easily unwind all of this stimulus.
<a href="http://www.salon.com/2012/09/01/ben_bernanke_speaks//">Some commentators</a> <a href="http://seekingalpha.com/article/161203-fed-unwinding-won-t-be-easy">have claimed</a> that the Fed can't safely unwind its quantitative easing measures. But the Fed's program involves buying some of the most heavily traded and owned securities in the world, Treasury and government-backed mortgage bonds. The Fed will likely have little problem finding buyers for these securities, all of which will eventually expire even if the Fed does nothing. But <a href="http://economistsview.typepad.com/timduy/2012/09/plosser-opposes-the-1933-37-expansion.html">economists have noted</a> that once the Fed decides it's time to unwind the stimulus, the economy will have improved to such an extent that this won't be an issue.