By Martin Dokoupil and Stanley Carvalho
ABU DHABI (Reuters) - Richard Fisher, President of the Dallas Federal Reserve, repeated on Tuesday his call for the U.S. central bank to slightly reduce its bond purchasing program.
Fisher, speaking at a financial conference in the United Arab Emirates capital, said that data from the U.S. economy had improved a lot recently and that there had been an incredible revival of the collateralized loan obligation market.
"I have been advocating for tapering of asset purchases. I think we should be adjusting that... We are not going to go like that forever," Fisher said.
"I do not want to go from wild turkey to cold turkey overnight. But I think we might just taper it a little bit and turn it down as the economy gets stronger. And I think we are at the point where we can afford to consider it."
The efficacy of the bond purchases has diminished, Fisher said, adding that he favored trimming back purchases of mortgage-backed securities as the housing market recovers. He declined to say how much the program should be reduced.
Fisher, long a vocal critic of the Fed's exceptionally loose monetary policy, does not vote on its policy-setting panel this year. He has been among the minority in emphasizing the risks of continuing to add to the Fed's balance sheet.
He said the root of U.S. economic problem was fiscal policy, not monetary policy, warning that there was a lot of liquidity in the economy that was not being utilized as businesses lacked certainty about the direction of fiscal policy.
"We ... know that monetary policy is necessary but not sufficient to achieve full employment because it's also a function of fiscal policy. And there lies the problem," he said.
Fisher noted that he wasn't the only policymaker arguing for lower bond purchases. Charles Plosser, President of the Philadelphia Fed, has taken a similar position.
Last week, Fed Chairman Ben Bernanke signaled a willingness to begin scaling back the program if the U.S. economy continues to improve, but downplayed the program's risks and made clear he did not expect to begin tightening policy soon.
Fisher said on Tuesday that the U.S. economy was beginning to move forward at a 2-3 percent clip though it was not accelerating significantly.
"We are moving towards a growth rate of 3 percent as we progress," he later told reporters.
He described this week's international rescue plan for Cyprus, which has rattled global markets by including the radical step of penalizing big depositors at its banks, as unique, since the island was a depository for "hot money" seeking high returns.
Fisher said the difficulty with the rescue was what it signaled to other depositors around the world. But he did not explicitly criticize the plan as setting a dangerous precedent.
"All central bankers are ... certainly hesitant to either criticize or describe the activities of our colleagues elsewhere in the world. We are struggling in the United States getting it right, and we understand the great difficulty of the ECB (European Central Bank) because it is a new experiment."
He added on Cyprus, "The depositors are nervous, the world is watching. It illustrates the enormous complexity."
(Writing by Andrew Torchia; Editing by Catherine Evans and Hugh Lawson)