By Steven K. Beckner

(MNI) – Dallas Federal Reserve Bank President Richard Fisher said
Friday that it won’t be appropriate to consider tightening monetary
policy until the Fed’s accommodative monetary policies actually have a
stimulative effect on the economy.

Fisher, a voting member of the Fed’s policymaking Federal Open
Market Committee, reiterated that he thinks the Fed has pumped plenty of
“liquidity” into the system to try to spur growth and job creation and
was dubious about the efficacy of easing even further.

But he seemed in no hurry to begin the process of exiting from zero
interest rates or an expansionary reserves policy in an appearance on
Bloomberg TV, any more than he had in a previous interview
with Market News International and in a speech at an MNI seminar.

Fisher said the Fed will continue to reinvest principal payments on
securities in its portfolio to prevent reserves from shrinking and will
keep its pledge to hold the federal funds rate at “exceptionally low”
levels for “an extended period” for “as long as is appropriate.”

Given that the economy is “weak,” the avowedly “hawkish” Fisher
offered no disagreement with Fed Chairman Ben Bernanke’s suggestion
following Wednesday’s FOMC meeting that the duration of the “extended
period” has lengthened in wake of a downgrade in the FOMC’s GDP and job
projections.

Like Bernanke, he foreclosed no policy options, saying that
the Fed will have to make judgments about the best way to proceed as the
data come in, although he made clear he would be disinclined to
support further easing.

The $600 billion second round of quantitative easing “ends at the
end of June; that much is clear,” he said. “We will also continue to
reinvest roll-offs … for as long as is appropriate.”

And Fisher said the “extended period” language in the FOMC policy
statement “will stay in place for as long as is appropriate.”

“We have to see how things develop here,” he said. “We have to see
what happens on the price front and also on the employment front. We
have a dual mandate.”

Fisher said the Fed has ample tools with which to tighten credit
when the time comes, but indicated there is no urgency in his mind.

“I’ll be delighted when we get to that point,” he said. “I would
like to see this amount of liquidity get translated into the economy
into job creation, and I very much look forward to an exit when it’s
appropriate.”

“But it has to be an appropriate time,” he continued. “Right now
the economy is weak.”

“We’ve stopped additional purchases of long-term assets, and we’ll
have to see how that’s digested by the economy before we talk about how
we … reduce our balance sheet — remove the stimulus we’re providing
to the economy,” he went on. “I want to see that stimulus first. That
would be a happy circumstance for me.”

Fisher added that he and his FOMC colleagues “are devoted
absolutely to making sure we don’t give rise to sustainable
inflation pressures that would be destructive.”

In response to repeated questions as to whether more stimulus is
needed to help a struggling recovery, Fisher restated his oft-expressed
position that the Fed has reached the limits of what it can accomplish.

“There is a lot of liquidity out there,” he said. “The question is
how will it be harnessed … to create jobs in America.”

“I don’t think adding more liquidity is the issue here,” he said,
pointing to the large amount of excess bank reserves and “the
enormous amount of working capital on (company) balance sheets.”

He said adding more liquidity might give rise to fears of “future
inflation forces.”

“The question is: would adding more liquidity do much more?” he
said. “Would getting rates down even further do much more?” He noted
that the 2-year Treasury note yield is already “within four basis
points of an all-time low.”

To contain inflation fears he said he “would be very happy” to have
the Fed adopt an explicit inflation target. On Wednesday, Bernanke noted
that he has been a longtime advocate of an inflation target, but
indicated he would not proceed toward adopting one unilaterally without
consultation with Congress and the executive branch. He said the Fed
would need to have a “buy-in” from the politicians.

Fisher downplayed differences of opinion among FOMC members and
denied any political motivations, saying that all are doing “the best we
can” for the economy.

Fisher also dismissed the drop in Bernanke’s popularity ratings.

“I don’t care,” he said, praising Bernanke’s “sincerity” and lack
of “pretension” and saying that all Fed policymakers are “in this
business to be central bankers.”

Fisher recalled that former Fed Chairman Paul Volcker was widely
reviled in the early 1980s, when he was taking stern measures to curb
double digit inflation. But “today he is one of the giants of all
time.”

So “most important is the results of what we do,” he said. “It’s
nice to be loved … . We will be loved if we get it right.”

** Market News International **

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