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Fed hawks back taper decision, one urges bolder action

Federal Reserve Bank of Richmond President Jeffrey Lacker testifies before the House Financial Services Committee hearing on "Examining How
Federal Reserve Bank of Richmond President Jeffrey Lacker testifies before the House Financial Services Committee hearing on "Examining How

By Steven C. Johnson and Alister Bull

(Reuters) - Two of the Federal Reserve's most outspoken policy hawks voiced support on Monday for the U.S. central bank's decision to start scaling back its bond-buying program, though one argued for bolder action.

Jeffrey Lacker, president of the Richmond Federal Reserve, and Dallas Fed chief Richard Fisher, long-standing critics of the Fed's ultra-easy monetary policy, both said the taper was justified and pointed to recent encouraging signals from the U.S. economy.

"I think the time was right," Lacker said in an interview on CNBC-TV. "Given the data ... this decision was kind of a slam dunk."

The Fed said on Wednesday it would trim the pace of its asset purchases by $10 billion, to $75 billion a month, saying the U.S. economy was strong enough to sustain the change though the recovery was far from complete.

Fed Chairman Ben Bernanke, who is scheduled to step down on January 31, told reporters after the decision that this gradual rate of reductions would likely be maintained over the course of 2014.

The Fed has held interest rates near zero since late 2008 to spur growth and hiring, and quadrupled the size of its balance sheet to around $4 trillion through three rounds of massive bond purchases aimed at holding down longer-term borrowing costs.

Fisher, a voting member of the Fed's policy-setting committee next year, said the decision was an important psychological step but he would have done more.

"I actually argued ... for $20 billion. I think the market could have digested that. And we'll just have to see how the economy proceeds," he told Fox Business television.

"I think that just getting this thing started was very, very important. I think it was also important for Ben Bernanke to lead that in his ... penultimate meeting," said Fisher, who has argued that the bond buying program risks future inflation.

Bernanke will step down on January 31 after chairing his final meeting on January 28-29. Janet Yellen, the Fed vice chair, is awaiting final confirmation by the full Senate to take over as the Fed chief, with the vote due on January 6. Yellen is expected to easily garner enough support to become the first woman to lead the U.S. central bank.

One measure of price pressures released on Monday showed consumer prices excluding food and energy rose just 1.1 percent in the year to October, well below the Fed's 2 percent goal.

Lacker, who has a reputation for being tough on inflation, said inflation expectations have remained closer to 2 percent but conceded that price pressures have not materialized.

"If you told me in early 2009 about how much we'd buy, what our balance sheet would look like, I would have thought it would have spooked markets and induced some erosion of credibility," he said.

Lacker is not a voting member of the Fed's policy-setting committee this year or next.

(Reporting by Steven C. Johnson; Editing by Chizu Nomiyama, W Simon and Leslie Adler)

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