Dallas Fed's Fisher Still Thinks Monetary Policy is Nearly as Easy as Possible
And this, my friends, is exactly why Richard Fisher is my 2nd favorite Fedhead. While guys like James Bullard are talking about additional Treasury purchases and Ben Bernanke is tentatively booking a rate hike on his 2012 calendar, Dallas Fed's fearless leader has the large, robust cojones needed to say enough is enough. Told you the economy was frigid, now leave her alone.
Check out comments Thursday to the Greater San Antonio Chamber of Commerce:
At both the national and regional levels, despite a series of hiccups and roadblocks, we continue our slow slog out of what proved to be a most hellish downturn in 2008 and 2009. I expect the economic expansion to continue, buoyed by slow and admittedly bumpy improvements in the labor market, increases in business and household spending, and resilience in entrepreneurial hot spots like Texas. But, on net, I fear the nation’s economy will be sailing forward at suboptimal speed, despite the fact that the cost of borrowing is low, equity markets have shown resilience and liquidity is plentiful on corporate balance sheets and in the form of excess reserves in the banking system.
For some time now in internal discussions with my colleagues at the Fed, I have ascribed the economy’s slow growth pathology to what I call “random refereeing”—the current predilection of government to rewrite the rules in the middle of the game of recovery. Businesses and consumers are being confronted with so many potential changes in the taxes and regulations that govern their behavior that they are uncertain about how to proceed downfield. Awaiting clearer signals from the referees that are the nation’s fiscal authorities and regulators, they have gone into a defensive crouch.
OK. I sort of agree with that position, the Fed's free money policy notwithstanding, as it is fairly obvious that businesses (and the poor consumer) are scared to death these days. Scared because the outlook is awful? No. Scared because GDP dropped .2 from the first to second quarters? Doubtful. They're scared because they have absolutely no idea what comes next, be it new regulations or tax hikes. That's the problem with lawmakers, they tend not to consider the aggregate effect of their little rules.
And just FYI, he wants to make sure you're still clear that the Fed is no one's bitch, bitch.
[N]o amount of further monetary policy accommodation can offset the retarding effect of heightened uncertainty over the fiscal and regulatory direction of the country. As long as our economic players—businesses and consumers—are beset by unmanageable uncertainty, they will refrain from making decisions that provide the stuff of economic growth. Indeed, one could posit that further monetary accommodation might make the situation worse if private sector operators were to conclude that the Federal Reserve has become politically pliable and is prone to substituting such accommodation for fiscal discipline.
Liquidity never was the problem and obviously Fed policy isn't the problem either. Well it depends on what problem we're talking about. It's THIS problem I am talking about:
Some of you may wonder whether our elected officials, faced with the truly monumental task of balancing the nation’s books, might simply throw in the towel and turn to the Fed to print us out of this enormous fiscal hole. If such a request were ever made, there should be no uncertainty: We at the Fed cannot and will not monetize the debt. We know what happens when central banks give in to those requests—it leads us down the slippery slope of debasing our currency and puts us on the path of hyperinflation and economic destruction. Neither I nor my colleagues are willing to risk that legacy.
I don't think Fisher can speak for some of his colleagues who would rather debase the currency than face the threat of deflation. Once the hamster jumps off the debt wheel the entire thing is doomed anyway, so might as well have some control over the level of the doom, right?
At least we know who won't volunteer to take turns with Bernanke at the press crank. Someone loves you, Richard Fisher, and it's probably me.