Fed's Fisher: U.S. debt situation at tipping point

FRANKFURT Tue Mar 22, 2011 11:35am EDT

Richard Fisher, president of the Federal Reserve Bank of Dallas, answers a question from the audience after delivering the 2009 Albert H. Gordon Lecture about the current financial crisis at the John F. Kennedy School of Government at Harvard University in Cambridge, Massachusetts February 23, 2009. REUTERS/Brian Snyder

Richard Fisher, president of the Federal Reserve Bank of Dallas, answers a question from the audience after delivering the 2009 Albert H. Gordon Lecture about the current financial crisis at the John F. Kennedy School of Government at Harvard University in Cambridge, Massachusetts February 23, 2009.

Credit: Reuters/Brian Snyder

Related Topics

FRANKFURT (Reuters) - The U.S. debt situation is at a "tipping point," Dallas Federal Reserve Bank President Richard Fisher said on Tuesday, and urged the U.S. central bank to refrain from any further stimulus measures.

"If we continue down on the path on which the fiscal authorities put us, we will become insolvent. The question is when," Fisher said in a speech at the University of Frankfurt.

Fisher, seen by economists as one of the most hawkish policymakers within the Fed, said that although debt-cutting measures would be painful, he expected the U.S. to take the necessary actions.

"The short-term negotiations are very important. I look at this as a tipping point."

He said the U.S. economy was now growing under its own steam, but voiced his concerns about building global inflation pressures and said it was now time for the central bank to stop pumping out extra support.

"The Fed has done enough, if not too much, and we should do no more.. In my opinion no further accommodation is necessary after June either by tapering off the bottom of treasuries or by adding another tranche of purchases outright."

Fisher warned there were signs that the speculative style of trading that had helped fuel the financial crisis was beginning to resurface.

"We are seeing speculative activity that may be exacerbating (price rises in ) key commodities such as oil."

Asked by reporters afterwards whether the Fed was currently changing course toward tightening monetary policy, Fisher said the bank's latest statement "speaks for itself."

He added that the Fed has a number of ways to tighten policy aside from hiking interest rates, and that the bank's exit strategy would be laid out when the time came.

"The real question is when do we stop accommodation."

"We need to continue to discuss the exit policy... but before you can tighten you have to stop accommodating," he said.

He said it was also too early to gauge the impact Japan's disasters and the rising tensions in the Middle East would have on the U.S. economy.

"There are different views (on the impact from Japan and the Middle East) being expressed, but we are central bankers. We have to think about the long term... It is way too early to tell," Fisher said.

(Reporting by Marc Jones and Sakari Suoninen)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (2)
NukerDoggie wrote:
Catch-22 – If the Fed stops accommodating, the weakling U.S. economy will collapse like a BUNCH…..OF……BROCCOLI! But if they keep accommodating, the commodities bubble will expand to colossal proportions and inflation will get loose. So what manner of death does the Fed prefer? A new, deeper recession (depression) or a stubborn bout of stagflation? Take your pick, Ben BurnYanky.

Mar 22, 2011 11:24am EDT  --  Report as abuse
DrJJJJ wrote:
No worries, our Senate has found $6 Billion in cuts-1.5 days of deficit spending! States look like they’re doing real well too! Oh happy days!

Mar 22, 2011 11:29am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.