Fed's Lacker says exit strategy dissent stemmed from MBS approach

WASHINGTON (Reuters) - Richmond Federal Reserve President Jeffrey Lacker on Friday identified himself as the lone dissenter on the Fed's so-called exit strategy, and said his opposition stemmed from the central bank's plan to keep holding mortgage-backed securities.

Lacker has previously opposed the Fed's purchase of mortgage-backed securities (MBS) because he feels it singles out a certain sector and gives it an advantage over other borrowing by consumers.

The Fed announced on Wednesday a new set of plans related to whittling down its $4.4 trillion balance sheet, built up through three large-scale bond buying programs.

The strategy, known officially as "Policy Normalization Principles and Plans", outlined various steps it will take in moving away from the loose policy that has been in place since late 2008. The policy-setting Federal Open Market Committee (FOMC) said all but one of its participants agreed with the approach.

"Specifically, I did not support plans for the assets on the Fed’s balance sheet," Lacker said in a statement on Friday.

The bond-buying programs, which involved monthly purchases of mortgage-backed securities and Treasury securities, were put in place in part to keep long-term borrowing costs down.

Lacker offered a similar dissent in December 2012 when the FOMC decided to continue buying MBS.

"If asset purchases are appropriate, the FOMC should confine its purchases to U.S. Treasury securities," Lacker said at the time, as that would cover a broader swath of borrowers and not single out a certain subset.

On Wednesday, the FOMC said it currently does not anticipate selling agency mortgage-backed securities as part of the normalization process. Limited sales may be warranted in the future, it said.

The Fed's continued holding of MBS prompted Lacker's dissent.

"I believe this approach unnecessarily prolongs our interference in the allocation of credit," Lacker said. "While this would favor home mortgage borrowers, it tilts the playing field against other borrowing by consumers."

(Reporting by Michael Flaherty; Editing by Chizu Nomiyama)