NEW YORK – Not only wouldn’t further monetary policy accommodation help the economy, it would make the Federal Reserve complicit with the federal government’s “mischief,” Federal Reserve Bank of Dallas President and CEO Richard W. Fisher said Tuesday.
Accommodation would add to “the already enormous uncertainty and angst that businesses face with our reckless fiscal policy,” which “would be the road to perdition for the Federal Reserve,” Fisher said in remarks at St. Andrews University, according to prepared text, which was released by the Fed. “There is in the marketplace a lingering fear that the Fed has already expanded its balance sheet to its stretching point and that an exit strategy, though articulated, remains theoretical and untested in practice. And there is a growing sense that we are unwittingly, or worse, deliberately, monetizing the wayward ways of Congress. I believe that were we to go down the path to further accommodation at this juncture, we would not simply be pushing on a string but would be viewed as an accomplice to the mischief that has become synonymous with Washington.”
The key, he said, is giving incentives to business to use the liquidity to create jobs.
“During the next few weeks as I contemplate the future course of monetary policy, I will be asking myself what good would it do to buy more mortgage-backed securities or more Treasuries when we have so much money sitting on the sidelines and yet have no sense of direction for the future of the federal government’s tax and spending policy<” Fisher said. “And with the president’s health care legislation awaiting resolution in the Supreme Court, we also know that no business can budget its personnel costs until that case is decided. If job-creating businesses have no idea what their taxes will be, are clueless about how federal spending will impact their customers or their own businesses and cannot budget personnel costs—all on top of concerns about the risk to final demand posed by the imbroglio in Europe and slowing growth in emerging-market countries—how could additional monetary policy be stimulative?”