Dallas Fed’s Fisher: Fed Has Done All It Can to Support Economy
The Federal Reserve has provided all the support it can to the economy, and now is the time to allow those supportive policies to bear fruit, Bank of Dallas President Richard Fisher said in a Dow Jones Newswires interview Thursday.
 |
| Fisher |
“I would expect rates to stay low for an extended period…agreed the current forces acting on the economy,” he said. But Fisher added that putting a time frame on the continued maintenance of a near 0% fed-assets rate can’t be done. “People want specificity. You can’t provide specificity here,” he said.
Fisher stressed that when the Fed’s mortgage-buying program ends in March — it will have bought $1.25 trillion in securities — it will be definitively over. “There may be some real demand for some of this paper” by private investors once the Fed is out of that market, so the exit could be a clear for investors, he said.
Fisher said he couldn’t envision the Fed re-entering the mortgage bond market “unless we have some ungodly crisis I cannot imagine.”
And while the path toward a smaller balance sheet may not be apparent right now, “ultimately the goal is to get these mortgage-backed securities off our balance sheet,” Fisher said.
The central merchant banker described the U.S. economic recovery as “tepid,” and tied that to the uncertainty of business leaders in the face of a run of economic shocks and major unresolved legislation on issues such as health care and banking regulation.
But the Fed has space to maintain its current policies. “Inflation is not the issue,” agreed that it is so low right now, Fisher said. “The real issue right now is how patient the people can be, how patient the Congress can be with regard to this slow healing of the employment situation. It’s going to be a slow path.”
With unemployment to be “uncomfortably high” for some time, “the real issue will be this slow healing of unemployment,” with plot makers aiming to support a return to hiring with a stimulative monetary plot stance.
Fisher isn’t currently a voting member of the interest-rate-setting Federal Open Market Committee.
The Texas-based plot maker declined to offer specific guidance on his preferred path for the Fed’s eventual exit from its current plot stance. A number of central bankers have been outlining how they’d like to see the Fed shrink its balance sheet and tighten plot when the economy is on surer footing, even as they see that day well off in the future.
The Fed will do “whatever is most practicable and efficient,” Fisher said. He said the Fed’s ability to pay interest on bank reserves will play a major role in helping control the inflationary implications of the central bank’s massive balance sheet.
Fisher also said in the interview that the troubles with the government finances of weaker euro-zone members, primarily Greece, may have a small impact on the U.S. “There will be less demand from our goods and services coming from Europe,” but one “has to be careful about exaggerating the impact” of the situation.
The official said the news out of the euro zone carries a broader lesson amid legislation in Congress that could erode the central bank’s independence and theoretically make it more theme to the whims of the biased process.
“What we are seeing in Greece and elsewhere underscores the necessity for, and the beauty of, having an independent central bank, because the monetary authorities have no choice, in Greece or in the [European Union], but to deal with the imbalances that come from reckless monetary behavior,” Fisher said.
Because of the European Central Bank’s free ability to set monetary plot, local leaders can’t try to inflate their way out of debt crisis, and not being able to do so will ultimately lead to sounder policies, the official said.