By Brai Odion-Esene

WASHINGTON (MNI) – The unconventional measures taken by the Federal
Reserve to boost the economy might have backed the central bank into a
difficult position from which it does not possess the experience needed
to extract itself, Dallas Federal Reserve Bank President Richard Fisher
said Friday.

“We’ve had a recovery which is quite disappointing,” Fisher said in
a presentation at the Metroplex Technology Business Council Industry
Luncheon in Dallas. “Right now we are cruising along very much at stall
speed.”

And although the U.S. unemployment rate has come down to 8.1%,
“there are a lot of people that have just given up, and the fact is we
are drowning in unemployment,” he said.

“None of us really know what the right tools are to fix it, we are
trying” Fisher continued.

More importantly the Fed has no experience using such
unconventional policy tools, Fisher said, “so none of us know how we are
going to navigate out of this particular quadrant of the liquidity pool
of the ocean of money.”

“What I’m concerned about is that we may be painting ourselves into
a corner,” Fisher warned.

He described the Fed’s quantitative easing measures as “monetary
Ritalin,” intended to have a calming effect on the markets.

“So one of the things that I like to force myself to do is to look
at the side effects of this monetary Ritalin that we are applying, and
might we be over-prescribing,” he said. “That’s a big question mark.”

Fisher said the Fed is taking a gamble, given that — if it is
successful in jumpstarting growth — it will begin to incur losses on
its portfolio from price movements as the economy adjusts to higher
interest rates.

Still, “We would like velocity to pick up,” Fisher said, and for
banks to loan out the money they currently have deposited at the Fed.

The issue to consider, however, is that once this money starts
being put to use, how much pressure will it put on prices as demand
increases and how does the Fed reverse the process, he added.

The Fed’s policymaking Federal Open Market Committee announced on
Sept. 13 that in addition to its maturity extension program, it will buy
$40 billion in mortgage-backed securities a month — and undertake
additional asset buying if needed — until it sees a significant
improvement in the labor market, for a total of $85 billion in monthly
asset purchases.

Fisher said QE3 has the effect of taking a housing market that is
on the mend and — if it works — “giving it an extra push.”

However, with mortgage giants Fannie Mae and Freddie Mac also
raising the fees on the mortgages they guarantee, “in a way it’s a bit
of an offset,” he added.

Fisher noted that business are sitting on “copious amounts of cash,”
so the question is “why, with all that fuel in the tank … what’s
stalling our economy in terms of job creation?”

The main things weighing on the minds of businesses, he said, is
“regulation, taxes and talent.”

“We have a very bad immigration policy in this country,” he said,
which is feeding into the talent drain. “We take the most talented
people in the world who come here … we educate them … and then we
don’t encourage them to stay.”

Fisher urged Congress to get its affairs in order and implement
policies that will encourage firms to spend.

The Fed has acted to provide abundant money at very low rates, but
“whether it’s too cheap or too abundant is not the point, it’s not been
put to work,” he said. Why? “Because of enormous uncertainty.”

And as for the looming fiscal cliff of tax hikes and spending cuts
set to take place at the beginning of 2013, Fisher warned that “a short
term fix (to the fiscal cliff) would do nothing but push out the
envelope of indecision, and we’ll continue to be plagued by high
unemployment.”

** MNI Washington Bureau: 202-371-2121 **

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