Federal Reserve Bank of Dallas President Richard Fisher, one of the most vocal critics of bond purchases by the central bank, said record Fed stimulus can’t revive U.S. manufacturers from a two-year slump caused by ambiguity in regulation and fiscal policy.
“They have been given abundant, super-cheap monetary fuel needed to stoke up their production engines and expand their businesses,” Fisher, who doesn’t vote on monetary policy this year, said today in a speech in Orlando, Florida. “What is holding us back” is “fiscal and regulatory policy of the gang that can’t shoot straight in Washington.”
Minutes of the Federal Open Market Committee’s July 30-31 meeting released yesterday show Fed officials are comfortable with Chairman Ben S. Bernanke’s plan to start reducing bond buying later this year if the economy improves. Treasury yields reached two-year highs today as reports showed a strengthening job market and a gain in economic indicators, suggesting the expansion may be strong enough for the Fed to reduce stimulus.
“I would have liked to start cutting back earlier,” Fisher said to reporters after his speech. “The economy is strong enough” for slowing purchases.
The U.S. is “moving in the right direction” with the performance of the job market, a trend that “has to be evaluated against the costs of continuing” bond purchases, he said.
The Dallas Fed leader said he regarded the minutes from the FOMC’s meeting last month as “very balanced -- to me, they were neither hawkish nor dovish,” and “represented the conversation perfectly well.”
U.S. stocks rose with the Standard & Poor’s 500 Index gaining 0.9 percent to 1,658.12 at 3:36 p.m. in New York. The yield on the 10-year Treasury note was little changed at 2.89 percent.
Fisher said in his speech that “there are many risks in the policy that the Fed has been pursuing,” without elaborating. In an interview with Bloomberg Television, he reiterated his view that the central bank should taper the $85 billion in monthly bond purchases at its Sept. 17-18 meeting, “provided that economic reports don’t disappoint.”
During a tapering, policy makers must be “careful not to be disruptive” to financial markets, he said in the interview with Megan Hughes.
The FOMC should first scale back purchases of mortgage-backed securities because the market for such debt is smaller than the one for Treasuries, Fisher said. The central bank each month is buying $45 billion of Treasuries and $40 billion in mortgage bonds.
“That’s a tough business for us to be in because it’s a very thin market,” Fisher said of the market for mortgage-backed securities. “We’re basically up to the point where we’re going to be buying 100 percent of the issuance at some point and nobody wants to be on the buy side to that extent, at least I don’t want to be.”
The FOMC will probably vote next month to scale back the unprecedented stimulus program, according to 65 percent of economists surveyed by Bloomberg Aug. 9-13. The first step may be to reduce monthly purchases by $10 billion, according to the median estimate in the survey of 48 economists. They said buying will probably end by mid-2014.
Fisher declined to say who he believes should become the next Fed chairman when Bernanke’s term expires in January, adding that he would like Bernanke to stay on for a third term.
Bernanke’s “legacy will be someone who brought about a totally innovative way to conduct central banking,” said Fisher. “I love the guy. He’s led us very effectively.”
Fisher spoke today primarily about U.S. manufacturing.
“Every manufacturer of goods in America has been given a great gift by your central bank -- the lowest cost of money in 237 years, an extension of the roaring bond market rally that has now run 32 years and a broad stock market rally that began in March of 2009,” Fisher said to a conference hosted by Wal-Mart Stores Inc. and the National Retail Federation.
Fisher, 64, 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.