While praising the Federal Reserve for pulling America from the brink “when the panic of 2008 occurred,” Federal Reserve Bank of Dallas president and chief executive Richard W. Fisher Friday warned that there are costs to the Fed “overstaying its welcome” and suggested it consider cutting back its latest accommodation.
“In my view, no amount of further accommodation by the Fed would be wise — either by prolonging or 'tapering off’ the volume of purchases of Treasuries past June, or adding another tranche of large-scale asset purchases,” Fisher told the Society of American Business Editors and Writers, according to prepared text released by the Fed. “Indeed, it may well be that we should consider curtailing what remains of QE2,”
“Now, we at the Fed are nearing a tipping point,” he said. “Just as we pressed on in doing our duty through extraordinary, exigent measures, we must now discipline ourselves to just as persistently normalize our operations in a timely way.”
The Fed cannot offer the perception that it is monetizing “the debt of fiscally imprudent government,” Fisher said. “Throughout the history of nations, monetizing the budgetary excesses of governments has proven to be a direct path to economic perdition. Having already peeked inside that door, I feel strongly that we must now shut it, lock it and throw away the key.”
Failure to fight off inflation is another risk, he said. Businesses are trying to price in hikes in prices of fuel, as well as other commodities and materials.
“My gut tells me that this will result in some unpleasant general price inflation numbers in the next few reporting periods,” Fisher said.
