The economy’s ills are not the result of a lack of liquidity or the need to ease monetary policy, and that’s the reason Federal Reserve Bank of Dallas president Richard Fisher gave for casting a dissenting vote at the recent Federal Open Market Committee meeting.
“Nonmonetary factors, not monetary policy, are retarding the willingness and ability of job creators to put to work the liquidity that we have provided,” the chief executive said Wednesday in a speech in Midland, Texas, according to prepared remarks released by the Fed.
Liquidity is “abundant,” providing the financing for “economic expansion and job creation in America,” he said, adding that excess “bank reserves are waiting on the sidelines to be lent to businesses.”
“I do not believe it wise to commit to more than [an extended period], or to signal further accommodation, when the cheap and abundant liquidity we have made available is presently lying fallow, and when the velocity of money remains so subdued as to be practically comatose,” Fisher said.
“My concern is with the transmission mechanism for activating the use of the liquidity we have created, which remains on the sidelines of the economy,” he said, adding that businesses “simply cannot budget or manage for the uncertainty of fiscal and regulatory policy. In an environment where they are already uncertain of potential growth in demand for their goods and services and have yet to see a significant pickup in top-line revenue, there is palpable angst surrounding the cost of doing business.”
The recent debate over the debt ceiling ended in an agreement that clarified nothing, “except that there will be undefined change in taxes, spending, and subsidies and other fiscal incentives or disincentives,” he said.
With that uncertainty and the Fed vowing to keep credit cheap for two years, Fisher said, “What incentive do I have to invest and expand now? Why shouldn’t I wait until the sky is clear?”
