Fisher Says Fed Won’t Allow Inflation in Place of Sound U.S. Fiscal Policy

Federal Reserve Bank of Dallas President Richard Fisher said the U.S. central bank’s adoption of a 2 percent inflation target is a notice to lawmakers they can’t count on higher inflation to replace sound policies.

The target is “an important signal to our fiscal authorities that they cannot expect inflation to absolve them of their duty -- the need to institute fiscal and regulatory reforms necessary to restore sustainable employment growth,” Fisher said in the text of remarks he’s giving in Mexico City today.

Fisher has called on Congress to tackle expanding deficits that he says prevent consumers and businesses from planning for the long run. The U.S. public debt burden will rise to 103.6 percent of gross domestic product this year, the Organization for Economic Cooperation and Development estimates.

“Mexico is actually doing better than the United States in many macroeconomic areas,” Fisher said at the Mexican Stock Exchange today. “This is a fact: Your government has implemented greater fiscal discipline than mine and has done so in a way that has not hampered economic recovery.”

“American politicians and policy makers have proven incapable of fiscal reform,” Fisher said.

The Dallas Fed chief, who doesn’t vote on the policy- setting Federal Open Market Committee this year, has been among the most vocal opponents of Fed easing, saying monetary accommodation can do little to generate the jobs needed to spur the U.S. rebound. Last year, he dissented twice against a move to push down long-term rates and a pledge to keep the benchmark borrowing cost near zero until at least mid-2013. He voted five times in 2008 in favor of tighter policy.

Photographer: Peter Foley/Bloomberg

Richard Fisher, president and chief executive officer of the Federal Reserve Bank of Dallas. Close

Richard Fisher, president and chief executive officer of the Federal Reserve Bank of Dallas.

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Photographer: Peter Foley/Bloomberg

Richard Fisher, president and chief executive officer of the Federal Reserve Bank of Dallas.

Mexican Reforms

Fisher, who grew up in Mexico City in the 1950s and speaks Spanish, used the bulk of his speech to praise reforms Mexico has made in recent decades to bolster growth and ensure economic stability. He singled out Mexico’s adoption of an explicit inflation target. He didn’t comment on the current U.S. economic outlook or monetary policy in his speech.

“As experience and credibility are gathered in the exercise of inflation rate targeting, a central bank can influence inflation expectations,” Fisher said. “The Banco de Mexico appears to have done this successfully. The inflation target has been ratcheted downward: It was 6.5 percent in 2001; now it is 3 percent.”

Fisher, 62, has been president of the Dallas Fed since 2005. His district includes Texas, northern Louisiana and southern New Mexico.

To contact the reporters on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net; Nacha Cattan in Mexico City at ncattan@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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