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Fed's Fisher says his FOMC vote will reflect concerns on bond buying

Federal Reserve Bank of Dallas President Richard Fisher speaks about the concept of breaking up 'too big to fail' banks to a breakout group at the Conservative Political Action Conference (CPAC) in National Harbor, Maryland, March 16, 2013. REUTERS/Jonathan Ernst

WASHINGTON (Reuters) - Dallas Federal Reserve Bank President Richard Fisher said his votes on the central bank's policy panel in 2014 will reflect his concern that the Fed's bond-buying risks stoking inflation and exposing the institution politically.

In an interview conducted on December 2 but posted to the Internet as a podcast on Monday, Fisher called the excess reserves piling up in the U.S. banking system potential "tinder" for inflation, and he said the central bank's plans to eventually unwind its extraordinary policies relied on an untested "theoretical exit strategy."

"I expect that my own voting behavior will reflect this concern I've just stated," Fisher said in the interview hosted by the private educational foundation Liberty Fund. "I worry about the fact that we've already painted ourselves into a corner that's going to be very hard to get out of."

Fisher, who rotates into a voting spot on the Fed's policymaking Federal Open Market Committee next month, expressed concern that as interest rates rise the Fed could begin to face paper losses on its massive portfolio.

"Will Congress remember that we made three years of substantial profits if interest rates go up ... and the market value of our portfolio declines?" Fisher asked. "My suspicion is that they would turn on us once again," he added, referring to the political attacks on the Fed in the wake of its efforts to help banks threatened by the 2007-2009 financial crisis.

The Fed has held overnight interest rates near zero since December 2008 and has roughly quadrupled its balance sheet to about $4 trillion through three massive bond purchase programs.

On December 18, the central bank said it would trim its bond purchases to $75 billion in January from a previous $85 billion per month pace as a first step toward winding the program down. Officials will need to decide whether to trim the buying pace further at their next meeting on January 28-29.

Fisher has long been among the internal critics of the program.

(Reporting by Timothy Ahmann; Editing by Cynthia Osterman)