The United States is in the middle of a jobs crisis, but it is action by Congress, and not the injection of yet more liquidity from the Federal Reserve, that can best address the urgent need to spark job creation and lower unemployment, Richard Fisher, president of the Federal Reserve Bank of Dallas, said Friday.
In remarks prepared for delivery to the Friday Group in Dallas, Fisher also renewed his attack on lawmakers. “Rather than work like ants to build and store for difficult times, our fiscal authorities have been proverbial grasshoppers,” he said. And now “a fiscal reckoning is upon us.”
“Our great country now finds itself in a very difficult economic predicament,” Fisher said. “Our most urgent issue is creating jobs and reducing unemployment.”
However, Fisher reiterated his belief that the Fed’s influence in this area is limited, and only lawmakers can craft policy that would ease the private sector’s concerns and embolden businesses to begin hiring once again.
“I happen to believe that the Federal Reserve is exhausting the limits of prudent monetary policy,” Fisher said, adding that programs such as the $400 billion Operation Twist has “so far been of greater benefit to traders and large monied interests than to job-creating businesses.”
While the Fed can “fill the gas tank” with attractively priced liquidity needed to propel the economy, he said, it cannot “trigger the impulse to step on the pedal and engage the transmission mechanism of job-creating investment by the private sector.”
Making money cheaper is not the answer to the country’s problems, and creating employment will require economic growth, according to Fisher.
He argued that with the Fed having “re-liquified” the U.S. economy, there is plenty of potential for confidence to be bolstered and propel the economy forward at an accelerating clip.
And with some of the temporary influences that held back growth in the first half of 2011 being reversed and fading away, Fisher said he expects the healing process to continue and gather momentum over time.
“I think we will see that growth in the third quarter was substantially greater than what we saw in the second quarter. Absent some shock, I envision a slow but steady improvement in the economy into 2012,” he said.
This prediction for next year will only come to pass, however, if fiscal authorities act to dispel uncertainty, Fisher said. Otherwise, he added, “I expect job creators will remain in a defensive crouch and all bets are off.”
Other risks to his outlook include “trip wires” from the ongoing sovereign debt crisis in the euro zone, and the tempering of growth in many of the emerging market economies to which the United States exports goods.
While the Fed’s focus is squarely on meeting its maximum employment mandate, Fisher warned that he is seeing “a bit of a tug-of-war” developing between rising prices and low consumer demand due to unemployment.
