NEW YORK – While economic growth and job creation should improve this year, the outlook remains clouded as the government continues its “fiscal and regulatory misfeasance,” but further accommodation shouldn't be needed, Federal Reserve Bank of Dallas President and CEO Richard W. Fisher said Monday.
“On balance, the data indicate improving growth and prospects for job creation in 2012. However, the outlook is hardly ‘robust’ and remains constrained by the fiscal and regulatory misfeasance of Congress and the executive branch and is subject to a now well-known, and likely well-discounted, list of possible exogenous shocks—the so-called ‘tail risks’—posed by possible developments of different sorts in the Middle East, Europe, China and elsewhere,” he told the Dallas Regional Chamber of Commerce, according to prepared text of his speech, released by the Fed.
But, despite the current spike in gas prices, which hasn’t been seen in the personal consumption expenditure and consumer price indexes, “the underlying trend has been converging toward the 2% long-term goal” of the Federal Open Market Committee. He did say the rise in prices could show those reports for February.
Wall Street’s desire for further monetary accommodation has Fisher “personally perplexed.” He explained, “Trillions of dollars are lying fallow, not being employed in the real economy. Yet financial market operators keep looking and hoping for more. Why? I think it may be because they have become hooked on the monetary morphine we provided when we performed massive reconstructive surgery, rescuing the economy from the Financial Panic of 2008–09, and then kept the medication in the financial bloodstream to ensure recovery. I personally see no need to administer additional doses unless the patient goes into postoperative decline. I would suggest to you that, if the data continue to improve, however gradually, the markets should begin preparing themselves for the good Dr. Fed to wean them from their dependency rather than administer further dosage.”
Further accommodation, he said, would be akin to “medical malpractice.” The Fed, already in uncharted territory, runs “the risk of painting ourselves further into a corner from which we do not know the costs of exiting. It is my opinion that we should run that risk only in the most dire of circumstances, and I presently do not see those circumstances obtaining.”
Comparing state economies, shows “monetary policy is a necessary but insufficient tonic for economic recovery,” he said. “The Fed has made money cheap and abundant for the entire country. The citizens of Texas and the Eleventh Federal Reserve District operate under the same monetary policy as do our fellow Americans. We have the same mortgage rates and pay the same rates of interest on commercial and consumer loans, and our businesses borrow at the same interest rates as their brethren elsewhere in the country. Which raises an important question: If monetary policy is the same here as everywhere else in the United States, why does Texas outperform the other states?”
While the response is “complicated,” many of Texas’ advantages result from state and local authorities’ enacting “business-friendly regulations and fiscal policy,” Fisher said. Specifically, he pointed to labor rules, which are more flexible than other states’, “local taxes, differences in zoning practices and myriad other factors, the cost of housing and the overall cost of living.” Plus, Texas policymakers “over time deliberately crafted laws and regulations, and tax and spending regimes, encouraging business formation and job creation.”
Fisher repeated his observation that Mexico, despite many failings is “outperforming the United States” fiscally.
“We have been thrown way off course by congresses populated by generations of Democrats and Republicans who failed the nation by not budgeting ways to cover the costs of their munificent spending with adequate revenue streams,” he railed. “The thrust of the political debate is now—and must continue to be—how to right the listing fiscal ship and put it back on a course that encourages job formation and gets the economy steaming again toward ever-greater prosperity. No amount of monetary accommodation can substitute for the need for responsible hands to take ahold of the fiscal helm. Indeed, if we at the Fed were to abandon our wits and seek to do so by inflating away the debts and unfunded liabilities of Congress, we would only become accomplices to scuttling the economy.”