Fisher: Investors Should Prepare for Less Fed Easing

Federal Reserve Bank of Dallas President Richard Fisher said he opposes additional Fed purchases of securities and urged Wall Street to get ready to become less dependent on monetary easing.

“I would suggest to you that, if the data continue to improve, however gradually, the markets should begin preparing themselves for the good Dr. Fed to wean them from their dependency rather than administer further dosage,” Fisher said today in a speech in Dallas. Financial markets “have become hooked on the monetary morphine we provided” after the 2008 financial crisis, he said.

Recent reports have highlighted that the U.S. expansion is broadening, with data today showing service industries unexpectedly expanded last month at the fastest pace in a year. Chairman Ben S. Bernanke gave no indication in congressional testimony last week that the Fed was considering altering record stimulus. The Federal Open Market Committee in January extended a plan to keep interest rates low at least through late 2014.

“I am personally perplexed by the continued preoccupation, bordering upon fetish, that Wall Street exhibits regarding the potential for further monetary accommodation -- the so-called QE3, or third round of quantitative easing,” Fisher said to the Dallas Regional Chamber of Commerce.

Richard Fisher, right, on Feb. 29, 2012, in Mexico. Photograph: El Universal/ZUMAPRESS.com Close

Richard Fisher, right, on Feb. 29, 2012, in Mexico. Photograph: El Universal/ZUMAPRESS.com

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Richard Fisher, right, on Feb. 29, 2012, in Mexico. Photograph: El Universal/ZUMAPRESS.com

Dissented Twice

Fisher, who isn’t a voting member of the FOMC this year, has been among the most vocal critics of Fed easing. He dissented last year twice against moves to push down long-term rates and to keep the benchmark U.S. interest rate near zero until at least mid-2013. He voted five times in 2008 in favor of tighter policy.

“I don’t believe it’s the role of the central bank to bail out -- and I use this term very advisedly -- fiscal misfeasance,” Fisher said later in Houston at CERAWeek, a conference sponsored by IHS Cambridge Energy Research Associates. “It’s time for fiscal authorities to pull up their socks.”

Responding to audience questions in Dallas, Fisher described U.S. businesses as “extremely productive” and said U.S. officials in charge of fiscal policy should overcome budgetary challenges.

“The economy’s beginning to raise its head,” Fisher said. “American businesses are lean and mean and ready to go.”

Fisher also said after both speeches that while he is concerned about the impact of rising gasoline costs on consumers, he doubts they will persist. Higher gas prices will have “a significant impact” on inflation reports for February, he said.

Greatest Concern

“I’m going to watch this development carefully,” he said. Fisher said his greater concern is “job creation.”

The Standard & Poor’s 500 index fell 0.4 percent to 1,364.33 at 4 p.m. in New York after China announced the lowest economic growth target since 2004 and European services and manufacturing output was less than earlier estimated.

“On balance, the data indicate improving growth and prospects for job creation in 2012,” Fisher said in his speech. “However, the outlook is hardly robust and remains constrained by the fiscal and regulatory misfeasance of Congress and the executive branch,” with rising deficits and regulations hurting growth.

“While price stability is being challenged by the recent run-up in gasoline prices,” which has yet to be reflected in inflation reports, “the underlying trend has been converging toward the 2 percent goal” on annual price increases that is the Fed’s official target, Fisher said.

Orders Picked Up

The Institute for Supply Management’s non-manufacturing index climbed in February to 57.3 from 56.8 the previous month, marking the fastest expansion in a year after orders picked up, according to a report today. In the meantime, jobless claims have fallen to a four-year low, Labor Department figures showed last week, adding to evidence that the labor recovery is gaining momentum as well.

The Fed’s Beige Book regional business survey, released Feb. 29, said the economy expanded at a “modest to moderate pace” in January and early February, fueled by manufacturers, including automakers. The survey is published two weeks before the FOMC meets to set monetary policy.

“The job market remains far from normal,” Bernanke told Congress last week in his semiannual testimony. “At present, with the unemployment rate elevated and the inflation outlook subdued, the committee judges that sustaining a highly accommodative stance for monetary policy is consistent with promoting both objectives” of the Fed for stable prices and maximum employment, he said.

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: Aki Ito in San Francisco at aito16@bloomberg.net; Steve Matthews in Atlanta at smatthews@bloomberg.net

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

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