Fed's Fisher: White House Mishandled Fed Succession

SAN ANTONIO — Dallas Federal Reserve Bank President Richard Fisher Monday slammed the White House for its handling of the succession process for the position of Fed chair, saying the public debate is denigrating to the candidates and throwing the independent central bank into the political arena.

"The White House has mishandled this terribly," Fisher said in response to a question following a speech to the Independent Bankers Association of Texas.

The public scrutiny "just makes us sound like a political instrument. We are not. We cannot be, we should not be, we must never be a political instrument," Fisher lamented.

Fisher praised Fed Chair Ben Bernanke for his handling of the crisis and his oversight of monetary policy, as well as Vice Chair Janet Yellen, and though they disagree on policy, he said she would be an excellent Fed chair, though he added that there are other "good people" who could fill the position.

He said the public debate is "denigrating" to them as well as to former Treasury secretary Larry Summers — who was thought to be President Barack Obama's first choice to succeed Bernanke.

"I just think this has been very poorly handled," he said. Although the choice is the President's decision "This should not be a public debate."

Fisher, who is not currently a voter of the Federal Open Market Committee, said he disagreed with the decision last week to keep asset purchases at the current $85 billion a month level.

In the FOMC discussion he warned the delay in dialing back the quantitative easing program — he advocated lowering purchases of Treasuries by $10 billion a month — risked the Fed's credibility, a prediction that has come true, he said.

Asked by MNI what is the danger of this loss of credibility, Fisher said markets were clearly caught off guard because the Fed is not communicating effectively. However, he stressed that he and other FOMC members are not driven by the markets but by what policy is best for the economy.

"What this underscores to me is our communications policy is a little off, and we'll just have to work harder to refine it," he told reporters. "My father said never wink at a girl in the dark. What that means is if the message is not received you didn't communicate it."

Markets were pricing in about $10 billion to $15 billion of tapering, he said, adding, "We can be legalistic about what we said, but message was heard and markets were caught off guard."

Fisher said he has advocated for some time that the Fed chair conduct a press conference after every FOMC meeting in order to explain complex policy decisions.

"I don't think we can announce a major initiative in these complex times we are in without someone explaining it."

Last week's FOMC decision to hold off on starting to dial back QE was a tough decision and a close one, he said, and others agreed with him it was time to start to reduce the pace of asset purchases.

"I didn't like the program in the first place but I didn't want to go from Wild Turkey to cold turkey overnight. I'd like to at least start to take a little booze out of the punch bowl," Fisher told the audience.

"It's not being used, and we're going to have to take that huge balance sheet at some point — when that money starts flowing back into the economy — and deal with it, neutralize it, so we don't create massive inflation. Which is a real possibility," he warned, but added "It's not a problem now."

Treasury purchases have not been effective in increasing lending or hiring, he told reporters, but he did not think it was the right time to reduce purchases of mortgage-backed securities yet given come "tenderness" in what has been a very good housing recovery.

The decision remains "data dependent," but he said, "it's more than data, it's a sense of feel because data captures the past not where things are going. Obviously the majority of the committee has to be convinced that it's time to act."

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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