LONDON - The U.S. economic recovery will be anemic and interest rates will have to stay low for long, President of the Federal Reserve Bank of Dallas Richard Fisher said in a CNBC interview broadcast Wednesday.
"Right now we are in the process of normalization. I expect that we are going to have low interest rates for some time. It depends on the pace of the economy, however, as to when that dynamic changes," Fisher said.
Asked about the uncertainty over the path of interest rates, Fisher insisted the Fed has been transparent in policy making.
He said the Fed, in response to the financial crisis, "took enormous risk, we put in place facilities for commercial paper, for asset backed securities ... so it wouldn't break the buck in the mutual money market, mutual fund area."
"We did our job, we ran up our balance sheet significantly there. We have now reduced those programs. The market has been restored in those areas. We are done, we closed them down," Fisher said.
Fisher said the aim was "more normal operations. We still have an enormous balance sheet, we have a lot of mortgage backed securities, some extra Treasuries on there. The counterpart to that is the trillion dollars in bank reserves that have been built up in the 12 Federal Reserve banks," he noted,
A key issue is "when the velocity picks-up and the economy picks-up, how that (build up in bank reserves) might go back in the system without creating inflationary pressures. Therein lies the question as to when we raise rates," Fisher said.
Fisher highlighted the problems facing the world's largest economy. He said the U.S. has a significant problem with unemployment and business needed to be confident about the outlook before it started hiring.
"A lot of people that aren't even on the (pay)rolls right now roll off, and they are waiting to come back in," Fisher said.
"We have unemployment bumping against that 10% ceiling. There are too many people out of work and, until businesses feel confident about the future, they are not going to add to their payrolls. They are not going to expand their cap-ex (capital expenditure)," he said.
"Right now, they're very, very cautious. We do have a business community in this country that has cut costs to the bone," Fisher said.
U.S. business has become "extremely efficient" but it is now waiting "for a better sense of direction before they have the confidence to invest and hire people," he said.
Fisher said U.S. business was worried about overhead costs, in part related to healthcare and cap and trade.
"I see a very ... tepid recovery," Fisher said.
"Our people and our businesses have been through a very traumatic shock," he said.
"It is, sort of, a post-traumatic shock syndrome that we are seeing here and it takes a while to get over that. I think it is going to be a long cure," Fisher said.
He said the challenge was for politicians and other to be patient and not to plant the seeds of some future crisis as they tried to cure the pain in the U.S. economy.
Fisher also made light of reports US President Barack Obama may hire doves in the new round of Fed appointments.
"I don't worry about that," Fisher said.
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