WASHINGTON — The Fed's aggressive buying of bonds to ease monetary conditions and tackle the nation's jobs crisis is "necessary but insufficient" so long as lawmakers fail to erase the fiscal uncertainty that is keeping employers on the sidelines, Dallas Federal Reserve Bank President Richard Fisher warned Tuesday.
In excerpts provided by the Dallas Fed from a speech to the Chamber of Commerce in Gainsville, Texas, Fisher reiterated his long-held belief that there is more than enough cash in businesses' coffers but the cloudy fiscal outlook has them hesitant to green light expansion plans.
He noted that very little of the massive amounts of liquidity injected by the Fed is being used to invest in job creation and job-creating capital investments.
This, Fisher said, raises a question about the efficacy of the central bank's accommodative monetary policy.
"Are our massive purchases of Treasury notes and bonds effective in meeting our mandate of conducting monetary policy so as to create maximum employment?" he asked. "The answer is, quantitative easing is a necessary but insufficient tool to spark job creation."
And Fisher said, "Employers will not deploy the cheap and abundant capital on hand toward job creation while there is so much uncertainty surrounding final demand for the goods and services they sell."
He urged action on breaking the impasse over the fiscal cliff and warned that until businesses know what their taxes will be or how federal spending patterns will change, "they will sit on their abundant money rather than spend it on unemployment-reducing expansion."
"This is one of the key reasons that our political authorities must resolve how they will tax and spend going forward and do so in a way that incentivizes American businesses to invest in job creation," Fisher said.
Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.