|Richard Fisher and other Fed dissenters have expressed concern that the Fed’s easy money policies risk igniting inflation.|
Fed bank chief fears latest effort won’t help
WASHINGTON - Richard Fisher, president of the Federal Reserve Bank of Dallas, said he opposed the Fed’s latest attempt to boost economic growth because he fears it won’t work - and it could scare consumers and squeeze bank earnings.
In a speech in Dallas yesterday, Fisher said the action taken last week and other recent Fed moves “are likely to prove ineffective and might well be working against job creation.’’
At its Sept. 20-21 meeting, the Fed’s policy making committee voted 7-3 to lower mortgage and other long-term interest rates by reshuffling its $2.9 trillion investment portfolio. The Fed will shift $400 billion from short-term to longer-term Treasurys through next June.
Fisher was one of the three voting members to oppose the decision. So far, he’s the only one to publicly explain his vote. The other dissenters were Philadelphia Fed president Charles Plosser and Minneapolis Fed chief Narayana Kocherlakota.
In August, the three also opposed the Fed’s plan to keep short-term interest rates near zero through mid-2013, as long as the economy stays weak. It was the highest level of dissent at the Fed in nearly two decades. The dissenters have expressed concern that the Fed’s easy money policies risk igniting inflation.
Like Fed chairman Ben Bernanke, Fisher called on Congress and the White House to do more to stimulate economic growth. But where they disagree is over whether the Fed should be taking action, too.
Until Congress gets its “act together,’’ any policies adopted by the Fed “will represent nothing more than pushing on a string,’’ Fisher said.
Businesses and banks are already sitting on plenty of cash, Fisher said. They’re just too scared and cautious about the future to take risks. That suggests that cutting interest rates further from today’s near-record lows won’t do much to get banks to lend and businesses to invest, hire, and expand.
Fisher said last week’s move, dubbed Operation Twist, could prove counterproductive. It might signal to consumers that the Fed believes the economy is “in worse shape than they thought’’ and prompt them to hoard money, he said.
Fisher said the Fed has done just about everything it can to help the economy. “I wouldn’t say we’re out of bullets,’’ he said, but whatever ammunition the central bank has left, “we need to deploy very, very carefully.’’