Nobody has the true answer to economic recovery since no one "really knows" why it has stalled since there has been no situation like this, Federal Reserve Bank of Dallas President Richard W. Fisher said Wednesday.
While many speculate about the economy, "The truth, however, is that nobody on the committee, nor on our staffs at the Board of Governors and the 12 Banks, really knows what is holding back the economy. Nobody really knows what will work to get the economy back on course," Fisher told the Harvard Club, according to prepared text released by the Fed. "And nobody-in fact, no central bank anywhere on the planet-has the experience of successfully navigating a return home from the place in which we now find ourselves."
Fisher has been a critic of further monetary accommodation, saying "with each program we undertake to venture further in that direction, we are sailing deeper into uncharted waters."
With $1.6 trillion in excess private bank reserves, and trillions more unused by corporations, money market funds and other nondepository financial operator, Fisher questioned why the Fed would add more liquidity "when so much is presently lying fallow."
Also, those depended upon to create jobs and expand businesses that fuel consumption have yet to respond to these "policy initiatives as well as theory might suggest."
He continued, "Surveys of small and medium-size businesses, the wellsprings of job creation, are telling us that nine out of 10 of those businesses are either not interested in borrowing or have no problem accessing cheap financing if they want it."
Rate cuts in this economy, he argued based on his discussions with CEOs, do not motivate businesses to spend to create jobs.
While "inflation is not an immediately foreseeable threat," longer-term inflation expectations inferred from bond yields have recently grown. While these inferences are volatile and of dubious reliability, fisher noted, "a sustained increase would suggest incipient doubts about our commitment to the Bernanke Doctrine of sailing on a course consistent with 2 percent long-term inflation. I believe that even the slightest deviation from this course could induce some debilitating mal de mer in the markets."
Back at the FOMC meeting, Fisher said, "My reports were given a fair hearing. But neither they, nor the arguments of others who questioned the need to provide further accommodation, carried the day, and a decision was made."
Fisher reiterated that Congress needs to push business to expand and create jobs. "One of the most important lessons learned during the economic recovery is that there is a limit to what monetary policy alone can achieve. The responsibility for stimulating economic growth must be shared with fiscal policy," he said. "Ironically, and sadly, Congress is doing nothing to incent job creators to use the copious liquidity the Federal Reserve has provided. Indeed, it is doing everything to discourage job creation."