–Will Call For Normalization, Stimulus Unwind If Needed To Counter Infl
–Fed Has Done As Much As It Can To Supply Liquidity For Econ Growth
–Fisher: ‘We Are Committed To Keeping Inflation Low’

By Brai Odion-Esene

LAS CRUCES, New Mexico (MNI) – The Federal Reserve has done as much
as it can in providing monetary stimulus to the recovering U.S. economy
and now the central bank must switch its focus to keeping inflation
under control, Dallas Fed President Richard Fisher said Wednesday.

“Should it prove necessary to counter inflationary pressures, I
will be among the first to advocate the unwinding of some of the
stimulus we have provided and returning monetary policy to a more normal
stance,” said Fisher, who is a voting member of the Fed’s policymaking
Federal Open Market Committee this year.

In remarks prepared for New Mexico State University’s Domenici
Institute Forum in Las Cruces, Fisher also cheered on the recovery in
the U.S. manufacturing sector, saying that kind of recovery will not
only will restore jobs, but also will be more sustainable.

In a speech that underlined Fisher credentials as one of the more
hawkish members of the FOMC, noted that inflationary impulses are
gaining ground “both at home and abroad.”

And while the higher gas and commodities prices have not translated
into more general price inflation, “My gut, however, tells me that we
must not become complacent on this front,” Fisher said.

Noting that businesses will be looking to offset with higher prices
the surging costs of inputs such as fuel and other commodities, “our job
is to keep these from passing into prices and wages throughout the
economy and creating a broader inflation,” he said.

Such a result, Fisher warned, “would be much more difficult, and
painful, to extinguish.”

If the Fed is to be successful in its quest to create a long-run
sustainable recovery with lots of job growth, inflation must be kept
under control, he said.

“In my view, we have done as much as we can to supply the liquidity
needed to restore economic growth,” Fisher said. “Now, as Ben Bernanke
made clear in his press conference last week, we must remain sharply
attuned to movements of underlying inflationary forces.”

While some have recently expressed some doubt over whether the Fed
is paying sufficient attention to its inflation mandate, Fisher made it
clear in no uncertain terms that, “We are committed to keeping inflation
low and maintaining the credibility gained so painstakingly by former
Fed Chairman Paul Volcker.”

And on a personal level, Fisher added that he would remain
steadfast in his resolve to keep inflation low and stable. “In monetary
parlance, I am known as an inflation hawk — a description with which I
am comfortable,” he said.

The Fed has faced widespread criticism for its apparent inaction in
the face of soaring prices, but Fisher defended the central bank,
arguing that headline inflation, important as it is in measuring the
rise in cost of living, “is not as informative as one might think for
predicting future inflation.”

It helps to exclude the more volatile components such as food and
energy, Fisher said, which is why underlying price movements are more
useful in predicting future inflationary trends.

“Our job as policymakers is to focus on underlying inflationary
pressures, so as to avoid overemphasizing temporary volatility that
might lead to faulty conclusions on the economy,” he said.

But this doesn’t mean the Fed is not paying attention to the prices
increases being fueled by food and energy, “they are clearly worrisome,
and we are following them closely,” Fisher added.

On the U.S. economy, Fisher declared that despite some shocks that
hit towards the end of 2010 and early this year, the economy continues
to recover.

“A host of more timely indicators suggest that economic growth will
likely pick up in coming months,” he said.

Focusing on the recovery within the manufacturing, Fisher called
the recovery in that sector, along with the rebound in capital goods
orders, as “particularly heartening.”

Not only do they contribute toward an economic recovery, he said,
but they are also harbingers of a needed rebalancing of in the U.S.

“And that’s the kind of recovery that not only will restore jobs,
but also will be more sustainable and will help bolster our standard of
living,” Fisher said.

** Market News International **

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