Fed’s Fisher Sees Declining Prospect of Easing as Recovery Gains Strength
Federal Reserve Bank of Dallas President Richard Fisher said he sees decreasing odds the central bank will need to ease policy further amid signs the U.S. economy is “poised for growth.”
“I’m more comfortable now in terms of not -- this is me personally speaking -- not anticipating greater accommodation,” he said yesterday in an interview at Bloomberg’s headquarters in New York. “The direction we’re moving in is positive.”
Fisher’s comments contrast with those of Chairman Ben S. Bernanke, who predicted on Nov. 2 that the pace of recovery will be “frustratingly slow,” and with researchers at the San Francisco Fed, who project a better than 50 percent chance of recession early next year. The Dallas Fed president is among the most vocal critics of central bank policy, dissenting twice this year against moves to push down long-term rates and keep the benchmark U.S. interest rate low until at least June 2013. He voted five times in 2008 in favor of tighter policy.
“We’re poised for growth,” Fisher said, citing recent data on retail sales and consumer sentiment. The risk of another recession “is negligible,” said the 62-year-old policy maker. Gross domestic product should expand by 2.5 percent to 3 percent in the fourth quarter, “gradually getting better as we go through time.”
In addition, “I’m not worried about immediate inflation right now,” he said. “What I’m worried about is the efficacy of our policy as it relates to job creation.”
Data released since the Fed’s meeting two weeks ago show that the unemployment rate unexpectedly fell in October to 9 percent from 9.1 percent the previous month. Employers added 80,000 jobs to payrolls, following gains in the prior two months that were revised up by 102,000, Labor Department figures showed.
Fisher said while he supports adopting an inflation target of 1.5 percent, he opposes making monetary policy conditional on specific economic indicators, as proposed by Chicago Fed President Charles Evans. The idea is “nice” in theory, though not practical as policy makers rely on their judgment, not just numbers, he said.
Consumer confidence rose more than projected this month, offering additional support to the biggest part of the economy, based on the Thomson Reuters/University of Michigan preliminary index of consumer sentiment released Nov. 11.
Yields on 30-year Treasuries have risen 12 basis points, or 0.12 percentage point, to 3.11 percent as of yesterday from 2.99 percent since Sept. 21, when the Fed announced a plan to purchase $400 billion of longer-term U.S. bonds and sell the same amount of short-term debt. U.S. stocks have gained since the Fed’s Aug. 9 meeting, when it committed to low interest rates through at least mid-2013. The Standard & Poor’s 500 Index has climbed more than 6 percent to 1,251.78.
Policy makers are contending with an unemployment rate stuck near 9 percent or higher for more than two years, and they said after their Nov. 1-2 meeting that they see “significant downside risks” to the outlook. They’ve cut their growth forecasts for 2012 and expect unemployment to average 8.5 percent to 8.7 percent in the final three months of next year, up from a prior range of 7.8 percent to 8.2 percent.
The European debt crisis is a “negative” disrupting the “positive momentum” behind the U.S. economy, said Fisher. He added that he’s confident officials on the continent will do “everything they can do” to preserve the euro, and he doesn’t doubt German Chancellor Angela Merkel’s commitment to Europe.
Earlier this month, Bernanke signaled additional stimulus may be needed and said potential actions are “on the table,” including a third round of securities purchases.
“As we get into other securities -- we are in mortgage- backed securities in a big way and we lengthened our activity along the yield curve -- then we’re going outside our normal purview,” Fisher said. “I do think it behooves us to think of what risks that presents.”
“I don’t see us entering into other instruments other than what we’ve already done,” he said. “Our objective is to get back ultimately to an all-Treasury portfolio and a normal operating style.”
In a speech last month, Fisher said he suspected the Sept. 21 decision to swap $400 billion of short-term debt in its portfolio for longer-term securities, move known as Operation Twist, has “so far been of greater benefit to traders and large monied interests than to job-creating businesses.” In March, while in Berlin, he said he sees “extraordinary speculative activity” in the U.S. after the central bank pumped record amounts of stimulus into the economy.
Last year, Fisher said the Fed’s decision to undertake a second round of large-scale Treasury purchases may have been the “wrong medicine” for the economy. He also took a stronger position than most of his colleagues on banks considered too big to fail, saying such institutions pose the biggest threat to the U.S. financial system and should be broken up under an international accord.
Fisher, who joined the central bank in 2005, dissented five times in favor of tighter policy in 2008 as the Fed lowered the target for the federal funds rate to keep the economy from faltering.
Before joining the central bank, Fisher was vice chairman of Kissinger McLarty Associates, the consulting firm run by former Secretary of State Henry Kissinger and Thomas “Mack” McLarty, who was President Bill Clinton’s White House chief of staff. The Dallas Fed chief is the only member of the Federal Open Market Committee who used to be a hedge-fund manager and U.S. Senate candidate.
The Dallas Fed district, which includes Texas and parts of Louisiana and New Mexico, has outpaced all of the central bank’s other 11 regions in nonfarm employment growth for the past two decades, according to the district bank.
From the end of the recession in June 2009 to June 2011, Texas has accounted for half of all net new jobs created in the U.S. Exxon Mobil Corp. (XOM), ConocoPhillips (COP), AT&T Corp., Valero Energy Corp. (VLO), and Dell Inc. (DELL) are among the biggest companies based in the state.
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