NEW YORK – The economic outlook should continue to improve, Federal Reserve Bank of Dallas President and CEO Richard W. Fisher said Wednesday.
“Yet even though I am a central banker and am professionally disposed to being a worrywart, I am more optimistic about the economic outlook than the consensus,” Fisher told the Dallas Rotary Club, according to prepared text of remarks released by the Fed.
Improved efficiency and competitiveness will spur growth, he said, adding that combining that with “a sound long-run budget deal,” should really add fire to the recovery.
Without growth, jobs won’t be created, Fisher said. “The simplest of econometric equations posits that the key components of economic growth are domestic consumption, plus foreign demand for U.S.-produced exports, plus investment by businesses, plus spending by government.”
But government spending is out of control. “Congress can no longer carry on as before, oblivious to the deleterious effect of spending our, and the successor generations’, money with unfunded abandon,” Fisher said. And the long-run debt and deficit woes must be solved without “pushing the economy back into recession, creating still more unemployment. And they must not only confront their addiction to debt and spending beyond their means, but they must reorganize the tax system, redirect the money they collect and rewrite the regulations they create so as to be competitive in a world that wants to beat us at our own game.”
Policymakers need to create incentives for “businesses and investors to put their money to work creating jobs here at home,” Fisher said.
“I firmly believe that the Federal Reserve has already pressed the limits of monetary policy. So-called QE2, to my way of thinking, was of doubtful efficacy, which is why I did not support it to begin with,” he said. “But even if you believe the costs of QE2 were worth its purported benefits, you would be hard pressed to now say that still more liquidity, or more fuel, is called for given the more than $1.5 trillion in excess bank reserves and the substantial liquid holdings above the normal working capital needs of corporate businesses.”
Liquidity is not the problem, he said. “U.S. banks and businesses are awash in liquidity. Adding more is not the answer to our problems.”
Fisher expects real GDP to grow at a 3% to 4% rate this half of the year, partly due to inventory adjustment. “If I see inflation continuing to rise and, most importantly, inflationary expectations beginning to spread, I will be the first out of the box to advocate the removal of the substantial monetary accommodation now in place,” Fisher said.
