NEW YORK – The Federal Reserve should not continue Treasury purchases, Federal Reserve Bank of Dallas President and CEO Richard W. Fisher told an audience in New York Wednesday.
Although he was not a voter, Fisher said he opposed the purchase of $600 billion of U.S. Treasuries, “roughly ... the equivalent of all newly issued Treasury debt through June,” he said, according to prepared text of his speech, which was released by the Fed.
Fisher said the asset purchase makes the Fed look like “an accomplice to Congress’ fiscal nonfeasance,” so “we must vigilantly protect the integrity of our delicate franchise.”
When central banks “regularly” monetize government debt, the outcome is “ruinous,” he said.
“Barring some unexpected shock to the economy or financial system, I think we have reached our limit,” he said. “I would be wary of further expanding our balance sheet. But here is the essential fact I want to emphasize today: The Fed could not monetize the debt if the debt were not being created by Congress in the first place.”
Congress must end the federal deficit in such a way that it won’t stifle the fragile recovery, he added.
“The new Congress and the new staff in the White House have their work cut out for them. You cannot overstate the gravity of their duty on the economic front,” he said. “Over the years, their predecessors ¯ Republicans and Democrats together ¯ have dug a fiscal sinkhole so deep and so wide that, left unrepaired, it will swallow up the economic future of our children, our grandchildren and their children. They must now engineer a way out of that frightful predicament without thwarting the nascent economic recovery.”
Monetary policy, he said, has provided the time for Congress to get “to work restructuring the tax and regulatory incentives American businesses need to confidently expand their payrolls and capital expenditures,” Fisher said.
He added, “Those lawmakers who advocate ending the Fed might better turn their considerable talents toward ending the fiscal debacle that has for too long run amuck within their own house.”
But Fisher also assailed states that have high tax rates, saying, “There is a reason Texas now houses more Fortune 500 headquarters than any other state in the union.
“That reason has nothing to do with monetary policy. It has everything to do with the taxation and fiscal and regulatory policies of the states. The cost of capital does not explain the different economic performances of the states; the cost of doing business has everything to do with those differences. However well-meaning tax and regulatory initiatives in the laggard states may have been when they were conceived and levied, they have had unintended consequences that have led to economic underperformance and job destruction,” he said.
Boosting the economy and creating jobs must be done through fiscal policy now that the Fed cut the cost of borrowing to its lowest levels in decades, ensured liquidity to banks and businesses, and kept inflation under control.
“None of my business contacts, large or small, publicly held or private, are complaining about the cost of borrowing, the lack of liquidity or the availability of capital. All express concern about taxes, regulatory burdens and the lack of understanding in Washington of what incentivizes private-sector job creation,” Fisher said. “All are stymied by a Congress and an executive branch that have appeared to them to be unaware of, if not outright opposed to, what fires the entrepreneurial spirit. Many have begun to feel that opportunities for earning a better and more secure return on investment are larger elsewhere than here at home.”
