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Dallas Fed’s Fisher Says U.S. Economy Hog-Tied by Government

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Dallas Fed President Richard Fisher
“One could say that GDP would have risen at 3.2 percent had government expenditure increased at the same rate as private expenditure,” said Richard Fisher, president of the Federal Reserve Bank of Dallas. “Or, more modestly, if government spending had just been held constant, instead of contracting, GDP would have grown at an annual rate of 2.6 percent.” Photographer: Jim Stem/Bloomberg

Nov. 4 (Bloomberg) -- Federal Reserve Bank of Dallas President Richard Fisher said fiscal discord has led to the U.S. government playing a suppressive role in the economy’s recovery and the central bank should move back to interest-rate driven monetary policy at the earliest possible time.

“I am not a proponent of increasing government spending without restraint,” Fisher, who will hold a vote on monetary policy next year, said a speech in Sydney today. “The excessively over-indebted U.S. government has, as mentioned, been hog tied -- prevented from providing stimulus. It has thus played a counter-cyclical, suppressive role.” Fisher said the views expressed were his own.

A deadlock over the federal budget led to a 16-day partial shutdown of the U.S. government last month. The nation’s economy probably slowed last quarter and employers hired fewer workers in October, indicating the expansion was losing momentum before the shutdown, economists project reports to show this week.

“We have a government that hasn’t been able to agree on a budget in five years; that has historically, under both Republican and Democrat presidents and Congresses, spent money and committed itself to fund long-term programs without devising revenue streams to cover current costs or fund future liabilities,” Fisher said. “The inability of our government to get its act together has countered the pro-cyclical role of the Federal Reserve.”

Balance Sheet

Asked by an audience member after the speech whether he could envisage circumstances in which the bond purchasing program was increased, rather than tapered, Fisher said he personally couldn’t see the balance sheet being expanded further than what is currently expected by the market.

“I think at the earliest possible moment we need to focus on transitioning back to having an interest-rate driven monetary policy,” he said.

“I can envisage us holding the base rate low for a very long time until we see an acceleration in the economy and especially in our case given our mandate on employment, as long as inflation stays in its current range, at less than 2 percent,” Fisher said.

Australian Heritage

Fisher’s ties to Australia trace back to his father, who was born in the northeastern state of Queensland, and placed in a reformatory at age five, then an orphanage and foster homes, “one so cruel as to tie him by his ankle at night to an outdoor post,” the Dallas Fed president said in a 2012 speech. His father would later travel to South Africa, Mexico and China before settling in the U.S.

Fisher, born in Los Angeles, studied economics at Harvard, graduated with honors, went to Oxford University, earned an MBA from Stanford University and then worked at Brown Brothers Harriman & Co. He built his own investment firm in Dallas before becoming an ambassador and deputy minister of trade for the U.S. and, ultimately, president of the Federal Reserve Bank of Dallas.

“In one generation, a great shift occurred: from homeless to Harvard; from a brutal reformatory in Queensland to the great banking house of Brown Brothers Harriman in New York,” Fisher said in the July 9, 2012 speech.

In his criticism of the American government in today’s address, Fisher noted that private expenditures on goods and services in the U.S. increased at a 3.2 percent rate over the expansion to date, whereas gross domestic product has risen at 2.2 percent.

Government Drag

“One could say that GDP would have risen at 3.2 percent had government expenditure increased at the same rate as private expenditure,” he said. “Or, more modestly, if government spending had just been held constant, instead of contracting, GDP would have grown at an annual rate of 2.6 percent.”

The government suspension shaved at least 0.6 percent from fourth-quarter 2013 gross domestic product growth, or took $24 billion out of the U.S. economy, Standard & Poor’s said last month.

“Under these circumstances, it is no small wonder American businesses are not expanding and growing jobs at the pace we at the Fed would like to see,” Fisher said. “It is no small wonder that our economy is growing at a substandard pace compared to previous recoveries. It is no small wonder that the most expansive monetary policy the Federal Open Market Committee has ever engineered has been hampered from accomplishing what it set out to do.”

RBA Meeting

Fisher, who met with Reserve Bank of Australia Governor Glenn Stevens earlier today, has regularly called for reducing the Fed’s $85 billion in monthly bond purchases.

Stevens, grappling with a higher currency in response to the Fed’s stimulus, said in a speech last week “surely the ‘taper’ will come,” adding that an unwinding would lessen some of the “uncomfortable spillover effects” unavoidably associated with the present set of policies.

“For some countries, including Australia, the beginning of a return to something resembling more normal conditions, in at least one major advanced country, would lessen some of the difficulties we face in our own policy choices,” Stevens said in the Oct. 29 speech.

To contact the reporter on this story: Michael Heath in Sydney at

To contact the editor responsible for this story: Stephanie Phang at

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