–More Monetary Stimulation Could Hurt Fed Reputation

By Steven K. Beckner

DALLAS (MNI) – Not only is there no clear need for additional
monetary stimulus, but trying and failing with more easing measures
could do real damage, Dallas Federal Reserve Bank President Richard
Fisher warned Monday.

Fisher, talking to reporters and answering audience questions
following a speech to the National Association for Business Economics
annual convention, said the Fed has provided “enormous liquidity …
abundant liquidity” and said it is now up to fiscal and regulatory
authorities to lay the foundation for a stronger recovery.

Fisher, a voting member of the Fed’s policymaking Federal Open
Market Committee who dissented against the FOMC’s decision to
conditionally commit to keeping the federal funds rate near zero
through at least mid-2013, repeated that “the bar is very high for me”
to provide more monetary stimulus.

The Fed’s highly accommodative monetary stance is “clear” to
business and to the American public, he said. But he said firms are
telling him that there is “no clarity” on taxes and regulations, and
that those are the biggest impediments to hiring and investment.

When MNI asked what harm there was in at least trying to stimulate
the economy further with the remaining tools which Fed Chairman Ben
Bernanke has mentioned, Fisher said that is not a good approach to
policymaking.

If the FOMC were to try and “failed,” he said further easing
efforts would prove “counterproductive” and hurt the Fed’s
credibility.

“I don’t think any central banker wants to push on a string, and
the question is are we pushing on a string? … And then how do we
exit?”

He said “those kinds of factors … have to be judged in terms of
the benefits.”

“I don’t think it’s as simple as … ‘Why not try it and let’s see
if it works,'” he continued. “We might try something, whatever it may
be, and it fails and then we damage our reputation or we end up being
counterpordugtive.”

Fisher was reluctant to specify how damaging the European
debt crisis could prove to be to the American economy, saying there
a number of different channels through which the U.S. might be
affected. In one of those channels, the impact of the crisis on the
yield curve, he said the crisis is actually being “helpful” to the Fed
by helping to push U.S. market interest rates lower.

Fisher took issue with those who favor letting inflation run above
target for a time.

“I understand the theory. But I think we also have to consider how
severe the backlash would be,” he said. “There’s a difference between
theory and practice.”

Were the Fed to announce that it was going to allow inflation to
run as high as 6% — something that Harvard economist Kenneth Rogoff has
recommended — the American people would revolt and demand an end to the
Fed’s political dependence.

He denied that he and his fellow policymakers are feeling any
“political pressure” and made light of recent caustic remarks by Texas
Governor and Republican presidential candidate Rick Perry, saying there
is “nothing new” in them.

He likened Perry’s comments to a long tradition of Texas
“populism,” although he said Perry might better have used the word
“reason” than “treason” in reference to Fed monetary policy.

** Market News International **

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