WASHINGTON — Dallas Federal Reserve Bank President Richard Fisher said the U.S. economy is "hog-tied" by "ineffective" and "counter-productive" fiscal policies that are holding back the effectiveness of the central bank's efforts to stimulate the economy.
"Unlike in most recoveries, government has played a countercyclical, suppressive role," Fisher said in remarks prepared for the Australian Business Economists group in Sydney.
"The inability of our government to get its act together has countered the procyclical policy of the Federal Reserve," he said.
Fisher added: "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."
"It is no small wonder that our economy is growing at a substandard pace compared to previous recoveries," he continued. "It is no small wonder that the most expansive monetary policy the FOMC has ever engineered has been hampered from accomplishing what it set out to do."
He said the Fed "has been moving at the speed of a boomer in full run," but the federal government "has at best exhibited the adaptive alacrity of a koala — without being anywhere near as cute."
Fisher, who called himself "an outspoken critic of the federal government's fiscal misfeasance," told the foreign audience "the economy of the United States is hog-tied by a government that is sadly ineffective and, in fact, counterproductive."
He pointed to the lack of a passed budget over the past five years and a Congress, during both Republican and Democratic presidencies, that has "spent money and committed itself to fund long-term programs without devising revenue streams to cover current costs or fund future liabilities."
He continued: "It is a government that is more effective at forming commissions to discuss what they might do — the president and Congress just recently have agreed to their ninth such commission in three years — than in getting anything done to provide businesses, employers, workers and the citizenry the certainty they need to confidently plan their futures."
Fisher continued the theme in a question and answer session after the speech, saying companies are not to blame for the state of the economy.
The corporate sector in the U.S. has made itself more efficient. "Our balance sheets are stronger than ever, they've repositioned themselves... completely restructured the liability side of the balance sheet."
But the problem is there is zero incentive businesses to invest. "Not only do they not know what tax incentives will be next year, they also don't know about the spending plans of the government."
He said the Fed will determine the time to start tapering depending on economic data: "And in deciding how long this will continue, we will be as we said data dependent."
He said the Fed is constantly doing cost benefit analysis and evaluating "what we are doing in the context of what else is happening in the economy."
Fisher said difference of opinion in the Fed Committee is over when to start the tapering process. "We have to figure out the time, when interest rate policy will (once again) start driving the monetary policy."
One of the costs of continuing quantitative easing is that it lessens the pressure on the government to act, Fisher said.
It is very difficult to get "politicians to make difficult decisions" when asset markets are rising, when house prices are going up, Fisher said.
From the financial stability point of view, Fisher said he's concerned about the narrowing in spread for CCC debt. The spread for such debt is usually above 850 basis points and currently it is below 450 basis points, he pointed out.
On the possibility of the Fed expanding its balance sheet further, Fisher said, "I do not envision the balance that goes to $10 trillion or $15 trillion or $6 trillion."
"Unless we have a financial panic of some sort, I personally cannot see us expanding our balance sheet beyond the current program," he said. The aim is to have interest rate policy to drive monetary policy at the earliest possible time, Fisher said.
He further said, "I can envision holding the base rate near zero for a very long time."
On a question on whether the Fed takes into account the impact of its action on other economies, Fisher said "we do discuss the impact."
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