Fed's Fisher: U.S. debt situation at tipping point

By Marc Jones and Sakari Suoninen
FRANKFURT | Tue Mar 22, 2011 11:35am EDT

(Reuters) - The U.S. debt situation is at a "tipping point," Dallas Federal Reserve Bank President Richard Fisher said on Tuesday, and urged the U.S. central bank to refrain from any further stimulus measures.

"If we continue down on the path on which the fiscal authorities put us, we will become insolvent. The question is when," Fisher said in a speech at the University of Frankfurt.

Fisher, seen by economists as one of the most hawkish policymakers within the Fed, said that although debt-cutting measures would be painful, he expected the U.S. to take the necessary actions.

"The short-term negotiations are very important. I look at this as a tipping point."

He said the U.S. economy was now growing under its own steam, but voiced his concerns about building global inflation pressures and said it was now time for the central bank to stop pumping out extra support.

"The Fed has done enough, if not too much, and we should do no more.. In my opinion no further accommodation is necessary after June either by tapering off the bottom of treasuries or by adding another tranche of purchases outright."

Fisher warned there were signs that the speculative style of trading that had helped fuel the financial crisis was beginning to resurface.

"We are seeing speculative activity that may be exacerbating (price rises in) key commodities such as oil."

Asked by reporters afterwards whether the Fed was currently changing course toward tightening monetary policy, Fisher said the bank's latest statement "speaks for itself."

He added that the Fed has a number of ways to tighten policy aside from hiking interest rates, and that the bank's exit strategy would be laid out when the time came.

"The real question is when do we stop accommodation."

"We need to continue to discuss the exit policy... but before you can tighten you have to stop accommodating," he said.

He said it was also too early to gauge the impact Japan's disasters and the rising tensions in the Middle East would have on the U.S. economy.

"There are different views (on the impact from Japan and the Middle East) being expressed, but we are central bankers. We have to think about the long term... It is way too early to tell," Fisher said.

(Reporting by Marc Jones and Sakari Suoninen)

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