NEW YORK – The most important of the Federal Open Market Committee’s three announcements after its latest policy meeting was that it couldn’t “specify an exact goal for employment” since nonmonetary factors have a great impact on labor markets, Federal Reserve Bank of Dallas President and CEO Richard W. Fisher said Thursday.
While the FOMC stated “an inflation rate of 2 percent, as measured by the index for personal consumption expenditures, is most consistent with our mandate,” the panel noted “the maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market” and change, making them impossible to measure, Fisher told the Headliners Club of Austin, according to prepared text of his remarks, released by the Fed.
“I have long maintained that monetary policy is but one gear in the complicated gearbox that drives job creation,” he said. “Education and other structural aspects of our economy condition the nation’s job-creating capacity; fiscal and regulatory policy, in turn, condition both the structure and dynamics of employment. I was delighted that the full committee recognized this and made it part of its official credo.”
The acknowledgement that monetary policy may not be able to spur employment growth “signals to the markets that there are limits to the ultimate job-stoking efficacy of Federal Reserve policy. To the extent that inflation is running below 2 percent, the Federal Reserve may have somewhat greater latitude to pursue accommodation. However, the past few years have demonstrated, yet again, that allowing inflation to rise by no means guarantees faster job growth,” he said. “The message to our nation‘s fiscal authorities is that they cannot expect monetary policy to substitute for the need to get their act together, stop their shameful politicking, get on with putting their fiscal and regulatory house in order and do so in a manner that encourages rather than continually undermines job creation and economic expansion.”
Turning to the statement that current conditions “are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014,” Fisher noted he voted against statements last year that tied accommodation to dates. “Instead, I feel that the key should be to calibrate monetary policy according to the state or condition of the economy.”
Fisher also opposes the individual economic and interest-rate forecasts, calling them “largely guesswork.” Quoting former Dallas Fed President Bob McTeer, Fisher said, forecasting should be avoided, but if you need to make a prediction, never put a date with it.
“I have yet to find a single economist on this planet who consistently forecasts the economy accurately, let alone projects with any precision the interest rate on overnight funds one year out or far into the future,” Fisher said. “If you examine the record of the Blue Chip economists or even of our superb Federal Reserve staff, you will find confirmation of a paucity of reliable economic forecasts.”
Fisher was careful to not impugn any of the panelists. “I don’t in any way consider my learned colleagues on the FOMC to be ignorant. But I draw upon my own experience in the corporate world … to suggest that you simply take all this forward guidance and forecasting a year or more out with a big grain of salt, bearing in mind that the policy statements and forecasts issued by the FOMC are tactical judgments of the moment, made within a broader strategic context.”
Prudent fiscal policy and a federal budget are necessities to create a better economy and cut unemployment, Fisher said. “Our political leaders’ misfeasance exacerbates the angst that inhibits the confidence of consumers and job-creating businesses.”
Praising the Fed for “clearly” articulating “its longer-run goal and policy strategy and” conducting “itself with integrity by responding to the needs of the economy,” Fisher railed against fiscal authorities, who “have conducted themselves with impunity: Their only long-term strategy is to pass the bill to our children and grandchildren.”
