–Fed Exhausting The Limits OF Prudent Monetary Policy
–Sees Steady Econ Improvement Into 2012 If Fiscal Policymakers Act
–Each Passing Day Congress Fails To Act Further Jeopardizes Econ Stab
–Renews Attack On Capitol Hill; Have Driven Fiscal Pol Into The Ditch

By Brai Odion-Esene

WASHINGTON (MNI) – The United States is in the middle of a jobs
crisis, but it is action by lawmakers on Capitol Hill, and not the
injection of yet more liquidity from the Federal Reserve, that can best
address the urgent need to spark job creation and lower unemployment,
Dallas Federal Reserve President Richard Fisher said Friday.

In remarks prepared for delivery to the Friday Group in Dallas, the
outspoken Fisher also renewed his attack on Congress, again likening
them to the grasshopper in Aesop’s fable. “Rather than work like ants to
build and store for difficult times, our fiscal authorities,” he said,
“have been proverbial grasshoppers.” And now “a fiscal reckoning is upon
us.”

“Our great country now finds itself in a very difficult economic
predicament,” Fisher said. “Our most urgent issue is creating jobs and
reducing unemployment.”

However, Fisher reiterated his belief that the Fed’s influence in
this area is limited, and only lawmakers can craft policy that would
ease the private sector’s concerns and embolden businesses to begin
hiring once again.

“I happen to believe that the Federal Reserve is exhausting the
limits of prudent monetary policy,” Fisher argued, adding that programs
such as the $400 billion ‘Operation Twist’ “have so far been of greater
benefit to traders and large monied interests than to job-creating
businesses.”

He added that while the Fed can “fill the gas tank” with
attractively priced liquidity needed to propel the economy, it cannot
“trigger the impulse to step on the pedal and engage the transmission
mechanism of job-creating investment by the private sector.”

Making money cheaper is not the answer to the country’s problem,
and creating employment will require economic growth, Fisher said.

He argued that with the Fed having “reliquified” the U.S. economy,
there is plenty of potential for confidence to be bolstered and propel
the economy forward at an accelerating clip.

And with some of the temporary influences that held back growth in
the first half of 2011 being reversed and fading away, Fisher said he
expects the healing process to continue and gather momentum over time.

“I think we will see that growth in the third quarter was
substantially greater than what we saw in the second quarter. Absent
some shock, I envision a slow but steady improvement in the economy into
2012,” he said.

This prediction for next year will only come to pass, however, if
fiscal authorities act to dispel uncertainty, Fisher said. Otherwise, “I
expect job creators will remain in a defensive crouch and all bets are
off.”

Other risks to his outlook include possible “trip wires” from the
ongoing sovereign debt crisis in the Euro area, and the tempering of
growth in many of the emerging market economies to which the U.S.
exports goods.

While the Fed’s focus is squarely on meeting its maximum employment
mandate, Fisher warned that he is seeing “a bit of a tug-of-war”
developing between rising prices and low consumer demand due to
unemployment. “If I see inflation continuing to rise and, most
important, inflationary expectations beginning to spread, I will be the
first out of the box to advocate the removal of the substantial monetary
accommodation now in place,” he said.

He does not, however, consider stagflation to be the most likely
U.S. outcome and expects headline inflation indices to gravitate toward
the 2% level.

The problem presently afflicting the U.S. is not inflation; it is
job creation, Fisher said.

“Our nation’s economy is at risk,” the Dallas Fed chief said,
urging Congress to act right now and without delay. He warned that “each
passing day they fail to do so further jeopardizes our economic
stability and our nation’s future.”

Fisher accused lawmakers past and present of unwittingly, over
time, driving fiscal policy “into the ditch,” with popular programs so
poorly funded “that they now threaten the economic well-being of our
children and our children’s children.”

He said lawmakers have no choice but to come to terms with the need
to have a better balance between taxes and spending, but cautioned that
even as they tackle the nation’s long-run debt and deficit problem, the
economy must not be pushed back into recession.

“In crafting a solution to the nations fiscal crisis, our
political leaders must take this new reality into account and develop an
entirely new structure of incentives for private businesses and
investors to put their money to work creating jobs, here at home rather
than abroad,” Fisher said.

** Market News International Washington Bureau: 202-371-2121 **

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