By Sheila Mullan

NEW YORK (MNI) – Dallas Federal Reserve President Richard Fisher
said late Wednesday he was looking forward to the point when the U.S.
economy normalizes enough to raise the issue of the timing of monetary
policy tightening.

“I look forward” to solving the problem “on when to tighten policy”
as that will mean the economy is normalizing, Fisher said during a
question and answer session following a speech before the Harvard Club
of New York City. “I will be thrilled when hawks like me” argue about
when to tighten policy, he said.

Fisher also said that neither inflation nor deflation in the U.S.
is “desirable,” adding that the Fed won’t let inflation spike. “We will
not let that happen,” he said, referring to inflation rising akin to
Germanys Weimar Republic or Argentina.

Fisher also said central banks — not just the Fed — are facing an
unprecedented situation with abundant global liquidity and a lack of
incentive to use it.

In fact, he noted earlier in his speech that the Fed has already
created huge amounts of bank reserves, and the third round of asset
purchases (“quantitative easing”) approved by the Fed’s policymaking
Federal Open Market Committee last week are unlikely to induce more
borrowing, spending, hiring or investing.

Illustrating the scope of the Fed’s actions in the markets, he
pointed out during the question and answer session that “the Fed owns up
to 70% in certain CUSIPS in Treasuries.”

But until there is an end to uncertainty about U.S. fiscal policy
and about economic conditions in China and Europe, he added in his
earlier speech, firms are unlikely to expand payrolls or production, no
matter how much money the Fed pumps into the U.S. economy.

He then told the audience that “Someone needs to be incented to
take the liquidity” the Fed is providing to the U.S. economy and “move
the job-creating economy forward.”

“Until there is an incentive to do so,” the U.S. economy “will lie
fallow,” he added.

That being said, Fisher noted the European Central Bank faces an
even more complex situation than the Fed, as it has many more
legislatures to contend with. “I pray for my colleagues at the ECB,”
Fisher said, as they have serious and complex problems to deal with in
addressing the European crisis.

Europe also faces a more urgent situation on the fiscal front than
the U.S., Fisher said, citing demographics in particular. He pointed out
that the U.S. has a relatively lax immigration policy and a higher birth
rate — an more population growth as a result — compared to such
countries as Italy. “The great thing about America is we like to breed,”
he quipped.

Still, “very tough decisions” need to be made on the funding of
U.S. social programs such as Medicare, Fisher stressed.

Meanwhile, getting Congress to work on the country’s fiscal
problems in general is difficult, he said.

Earlier Wednesday, members of the U.S. Senate Finance Committee
said after meeting with Federal Reserve Board Chairman Ben Bernanke that
the Fed chief urged Congress to enact a deficit reduction plan that
achieves substantial deficit reduction over the medium and long term and
which is phased in gradually.

Turning to regulatory developments, the central banker stressed
that the Dodd-Frank Act “empowers the large banking institutions,” while
hurting community banks.

Instead, “I believe in breaking up the big five banks” in the U.S.,
Fisher said.

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