Federal Reserve Bank of Dallas President Richard Fisher said the central bank should stick to its strategy of gradually reducing bond purchases even as harsh winter weather slows U.S. economic growth.
“I am not persuaded continuing to taper should be altered,” Fisher said today in a Bloomberg Radio interview in Dallas with Kathleen Hays and Vonnie Quinn. “Obviously weather is playing a significant role here.”
“If you look at activity in the West and the Southwest and Florida, you are seeing pretty robust activity,” said Fisher, who votes on policy this year. “Even the Fed cannot offset Mother Nature. The economy has been moving in the right direction.”
Fed Chair Janet Yellen pledged this week to maintain her predecessor’s policies by trimming stimulus in “measured steps,” and signaled the bar is high for a change in that plan. Only a “notable change in the outlook” for the economy would prompt policy makers to alter the pace for tapering the Fed’s $65 billion in monthly bond buying, Yellen said during congressional testimony.
Fisher said he will favor trims in bond buying at each Federal Open Market Committee meeting unless he sees “something truly frightening in the economy.”
U.S. stocks rose, with the Standard & Poor’s 500 Index increasing 0.4 percent to 1,837.60 at 1:41 p.m. in New York. The yield on the 10-year Treasury note increased one basis point, or 0.01 percentage point, to 2.74 percent.
U.S. industrial output unexpectedly declined in January by the most since May 2009, adding to evidence severe weather weighed on the economy. The 0.8 percent decrease at manufacturers followed a revised 0.3 percent gain the prior month that was weaker than initially reported, figures from the Fed showed today.
Sales at U.S. retailers fell last month by the most since June 2012. The 0.4 percent decrease followed a revised 0.1 percent drop in December that was previously reported as an increase, according to Commerce Department figures released yesterday.
The disappointing data on manufacturing and retail sales followed two straight employment reports that fell short of economists’ forecasts. Payrolls grew by 113,000 in January and by 75,000 in December, the weakest back-to-back gains in three years.
Fisher said Fed officials should discuss changing their forward guidance on the possible timing for increasing the benchmark interest rate. “We need further discussion about how we refine that language,” he said.
St. Louis Fed President James Bullard said this week the central bank will probably signal the path for interest rates based on “qualitative” judgments of the economy, moving away from a pledge to begin considering an increase in the main interest rate when unemployment falls below 6.5 percent.
The 6.5 percent threshold is a “crude instrument,” Fisher said.
The jobless rate unexpectedly declined in January to 6.6 percent, according to a Labor Department report.
Some job markets may be tightening with “severe labor shortages in certain areas” including construction workers, technology workers and auditors, Fisher said. “We are hearing reports, at least in my district, of some labor price pressures.”
While Fisher said he wasn’t concerned about inflation today, he said when banks and other businesses put excess cash to work there is a risk of an “inflationary conflagration” unless the Fed acts to manage the exit.
“It is not an issue now,” he said. “What I am worried about is when the velocity of money picks up.”
Fisher, a former money manager and deputy U.S. trade representative, has been president of the Dallas Fed since 2005. In 2011, he dissented twice against efforts to push down long-term borrowing costs and keep the benchmark interest rate near zero for a prolonged period. He voted in favor of tighter policy five times in 2008. His district includes Texas, northern Louisiana and southern New Mexico.
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