NEW YORK – Although “we’re not in the financial pink,” the recovery should be allowed to build without disruption, but fiscal and regulatory policies have created “angst” that has hindered growth, according to Federal Reserve Bank of Dallas President Richard W. Fisher.
Fisher said it is “uncertainty, high household debt burdens and a lack of confidence in future income growth” that is holding the economy down.
“At a minimum, we need to let the slight momentum of the current economic recovery build and do nothing to disrupt it,” Fisher told the Greater Houston Partnership, according to prepared text of his speech, which was released by the Fed.
“As for doing more than avoiding passive tightening in an attempt to goose up that momentum, much will depend on the cost–benefit trade-off of utilizing any of the additional tools in our kit,” he added. “I think it is abundantly clear to the market that regardless of the language the FOMC employs to describe its deliberations and intentions, the consensus of the committee is to keep the price of money—the cost of the gas needed for our nation’s economic engine—low until the committee is confident that the gears of the economy have begun to mesh more robustly.”
Fisher said they take the role seriously. He also suggested that the “dual mandate” adding preserve financial stability to “creating the monetary conditions that foster full employment and price stability.”
“If we fail to act when action is required, we might be the agent of economic destruction. And if we overreact, we can be equally destructive,” he said. “Which means we must at all times carefully weigh the costs, as well as the benefits, of any and all actions we take. And as the efficacy of our actions depends upon confidence in our integrity, we must always bear in mind that our word is our bond. We cannot risk either overpromising or under committing to executing the duties than have been assigned to us.”
Turning to the Fed’s balance sheet, Fisher said he would be “reluctant” to expand it “unless or until fiscal and regulatory initiatives are aligned with the needs of job creators.”
Without such planning, further accommodation could lead to inflation. “Of course, if the fiscal and regulatory authorities are able to dispel the angst that they are reportedly causing, further accommodation may not be needed because the liquidity that has been built up on corporate balance sheets and in the excess reserves of banks might then be released into the economy and spur job creation,” he said.
“For me, the ball is in the fiscal court for now. Any further action by the Fed must be subject to the kind of rigorous cost–benefit analysis that Ben Bernanke cited in Jackson Hole,” Fisher added. “One of the variables that must be taken into account is whether fiscal and regulatory policies are conducive to growth.”
