The dollar is benefiting from Europe’s woes, while the U.S. economy is in a “gradual state of repair” and should avoid falling back into recession, said Richard Fisher, president of the Federal Reserve Bank of Dallas.
The 61-year-old regional bank chief, speaking to reporters today after a speech in Killeen, Texas, said the rising U.S. currency reflects a “flight to safety.” Fisher will vote on the policy-setting Federal Open Market Committee next year.
The dollar proved to be last month’s best investment, beating stocks, bonds and commodities, and confounding officials around the world who said Fed policies would debase the U.S. currency. Fisher is among the officials who have criticized the central bank’s Nov. 3 decision to undertake a second round of large-scale Treasury purchases, and said in November that the move may be “the wrong medicine” for the U.S. economy.
“I don’t think there’s any surprise here in terms of the distress you’re seeing in Europe being reflected in the dollar’s strength,” Fisher said after a community forum sponsored by the Dallas Fed.
“We want to conduct monetary policy, and we want to have fiscal policy conducted in this country, so that in absolute terms, not relative to anybody else, people have confidence in our currency and our economy and invest more here,” he said. “Right now, Europe’s going through a rough patch.”
The U.S. Dollar Index, which tracks the currency against those of six major U.S. trading partners including the euro, yen and pound, rose 5.1 percent in November. The dollar was down 1.2 percent against the euro at 3:33 p.m. in New York, at 1.3136.
“Things are beginning to repair,” Fisher said during his speech.
The U.S. economy grew more than previously calculated in the third quarter, led by stronger consumer spending and fueled by labor income gains that may stoke demand into 2011, figures from the Commerce Department showed on Nov. 23. Consumer purchases rose at the fastest pace since the last three months of 2006.
“We are in a gradual state of repair,” Fisher said during the forum. Fed policy taken in response to the crisis and slower growth “has benefits and has its costs,” he said.
Testing the Boundaries
Fed officials are testing the boundaries of unconventional monetary policy by relying on a policy devised during the financial crisis to add fuel to an economy that’s expanded for more than a year.
At the committee’s most recent meeting, policy makers agreed to buy an additional $600 billion of Treasuries through June, and adjust the purchases “as needed,” while leaving in place a pledge to keep interest rates low for “an extended period.”
The round of purchases announced last month follows a previous $1.7 trillion bond-purchase program. Economists call the strategy quantitative easing because it aims to increase the quantity of bank reserves.
Minutes of the Nov. 2-3 gathering, released last week, show that officials disagreed over whether to expand the record monetary stimulus, with a minority concerned about risks to inflation and the dollar.
During a Nov. 8 speech in San Antonio, Fisher said some of the risks of the Fed’s decision include a weaker dollar and the perception that the Fed is “monetizing” the government’s debt by creating money to finance the shortfall.
Fisher, a former money manager and deputy U.S. trade representative, has been president of the Dallas Fed since 2005.