Federal Reserve Bank of Dallas President Richard Fisher cast doubt on the need for further monetary easing by the central bank, saying it’s unclear how effective it would be in spurring spending and creating jobs.
“While none of us are satisfied with the current pace of economic expansion and job creation, presently it is not clear that conditions warrant further crisis-like deployment of the Fed’s arsenal,” he said today in a speech in Vancouver.
Fisher warned that the Fed’s easy-money policies already have hurt savers, may reinforce plans by large companies to invest overseas without stimulating job growth in the U.S., and have contributed to the dollar’s decline. His comments contrast with those made today by New York Fed President William Dudley and Chicago Fed President Charles Evans, who are inclined to support additional steps that would help the economy.
“In my darkest moments, in fact, I wonder if the monetary accommodation we have engineered might not be working in the wrong places,” Fisher said during the speech today before the Vancouver Board of Trade. He told reporters afterwards that policy makers are “trying to get things right so that we can live up to the dual mandate that we are charged with,” which includes promoting price stability and maximum employment.
The dollar fell to the lowest level since March versus the euro and dropped against the yen after Dudley of the New York Fed said that more monetary easing is needed unless the U.S. economy strengthens. The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency against six major counterparts, extended its biggest monthly drop since June 2009.
The “vexing question” is why businesses aren’t taking advantage of liquidity already supplied by the Fed, and hiring workers, Fisher said in the speech. “The efficacy of further accommodation at this point is not crystal clear,” said Fisher, 61, who doesn’t vote on the rate-setting Federal Open Market Committee again until 2011.
Large to medium-sized companies outside the financial industry have “abundant” access to capital, while the U.S. Treasury Department should consider undertaking a program to boost credit to small businesses, he said.
Fisher said the business executives he talks to are being held back from expanding in the U.S. partly by uncertainty over new regulations, such as health care, and the prospect of tax increases.
While describing the recovery as likely to be “modest” for the third quarter, with a “tail risk of deflation” in the U.S., Fisher said, “I have concerns about the efficacy of further expanding the Fed’s balance sheet until our political authorities better align fiscal and regulatory initiatives with the needs of job creators.”
“Otherwise, further quantitative easing might be pushing on a string,” Fisher said. “In the worst case, it could flood the engine of the economy with gas that might later ignite inflation.”
The Dallas Fed chief’s remarks place him closer to the views of Philadelphia Fed President Charles Plosser and Narayana Kocherlakota, head of the Minneapolis Fed, who earlier this week questioned the effectiveness of additional asset purchases by the Fed. Officials are speaking “quite openly” about their opinions and it’s best for the market “to try to read the tea leaves to discern what’s likely to happen,” Fisher said.
The yield on two-year Treasury notes fell to a record low after a report showed U.S. manufacturing growth slowed, encouraging investor speculation that the central bank will increase purchases of government debt. The two-year note yield was little changed at 0.418 percent after earlier touching the record low of 0.4066 percent.