The Fed has done its job, and until “fiscal and regulatory authorities” do theirs, monetary accommodation will continue, Federal Reserve Bank of Dallas president and chief executive Richard W. Fisher said Wednesday.
“Ultimately, the key to harnessing the monetary accommodation that has been provided by the Fed lies in the hands of our fiscal and regulatory authorities, the Congress working with the executive branch,” Fisher told the Texas Manufacturers Summit, according to prepared text of his speech, which the Fed released.
The Fed, he said, “made money abundant and cheap,” but business will not take advantage of easy monetary policy “to an optimal degree until they have a clear understanding of how taxes and regulatory and other cost factors will affect their operations going forward.”
State and local laws in Texas have encouraged “investment, business formation, and job creation, and this gives us an advantage over many other states. But it is only a marginal advantage, which, while important, is insufficient for us to reach our full potential in creating jobs,” Fisher said. “Federal taxes, spending patterns, and regulation weigh heavily on the confidence and capacity of businesses in Texas, as they do elsewhere else in the U.S.”
Businesses can’t “properly budget future costs or plan for payroll expansion and capital investment until it knows what its federal taxes will be or how federal spending and regulatory patterns will affect it, its suppliers or its customers,” he added.
Also, long-term plans can’t be made “with confidence until the federal government removes the angst that is associated with runaway deficits and unfunded liabilities that threaten to drown our economy in debt.”
Fisher pointed to a study where respondents saw U.S. competitiveness and job-creating investment dropping for the next three years without removal of “the greatest impediments to investing in and creating jobs in the U.S.,” which were the current tax code, regulatory burden, uncertainty, and lagging workforce skills.
“No amount of monetary accommodation will change” these problems, Fisher said. “Indeed, excessive monetary accommodation might only add a further dosage of angst, fueling fears of future inflation.”
At the most recent Federal Open Market Committee meeting, officials set a target of 2% inflation and said no formal numeric target for employment could be made since non-monetary factors are at play.
“For me, the message was clear — if we are to heal the plight of the American worker, our fiscal authorities cannot count on the Federal Reserve to do the job only those authorities can do; they must get their act together, set aside their partisan and personal ambitions, and act to right their listing fiscal and regulatory ship,” Fisher said.
While the unemployment rate is dropping, he said, “too many Americans remain out of work and for too long. We have miles to go before we sleep in the comfort of knowing that the American dream of ever-growing prosperity has been restored.
“I would submit that until the fiscal authorities ¯ the Congress and the executive — stop their posturing and their bickering, job creators will sleep only fitfully until they know how decisions about fiscal policy and regulation ¯ if and when they are made ¯ will affect their operations and final demand for their products,” he said. “And until a credible long-term plan is crafted to bring perpetual deficits and debt accumulation under control, they will be haunted by the nightmare that our elected leaders are simply passing the bill to our children and our children’s children. This is a predicament the Fed is powerless to change.”