WASHINGTON U.S. growth is being held back by uncertainty over the country's tax code and future government spending, a senior Federal Reserve official said on Wednesday, warning that businesses would not boost hiring until these issues were resolved.
Dallas Federal Reserve President Richard Fisher said a year-end 'fiscal cliff' of tax hikes and government spending cuts was deterring U.S. businesses from deploying the ample cash they have at hand to invest and add to payrolls.
"The great inhibitor of job creation is the uncertainty over taxes and spending and regulation that plagues businesses," Fisher told the Cato Institute in Washington.
"Even if businesses do not like the rules that govern their behavior, knowing those rules with certainty gives them something to plan around and navigate through. Presently, they haven't the foggiest idea what the rules will be," he said.
Bush-era tax cuts will expire at the end of this year, and deep automatic reductions in government spending begin to bite, unless Congress agrees to a debt-and-deficit reduction package.
Fed officials have consistently warned that failure on the part of Congress to reach a deal could tip the U.S. economy back into recession, but the chances for a compromise before the November 6 U.S. presidential and congressional elections looks almost nil.
Fisher, an anti-inflation hawk who has said he would not have supported its latest action to spur growth, warned that the central bank ought not shield politicians from making tough decisions just because it might cost them their seats on Congress.
"Continued monetary accommodation, in my opinion, dis-incentivizes the fiscal authorities from making the decisions that they have to make," he told reporters after the speech.
FISHER: BUSINESSES CREATE JOBS, NOT FED
The U.S. central bank last month announced it would buy $40 billion of mortgage-backed bonds every month until it saw a substantial improvement in the U.S. labor market. In the month of September the rate of unemployment declined to 7.8 percent but remains high by historic standards.
This was on top of two previous rounds of so-called quantitative easing by the Fed, as well as the central bank having held interest rates at almost zero since December 2008 to spur U.S. growth. Fisher warned this would not spur hiring.
"There are limits to what we are able to accomplish with monetary policy," he told reporters. "Only businesses can create jobs. The government has run out of its significant capacity to create jobs."
He also voiced skepticism about adopting numerical thresholds to help guide public expectations about when the Fed will begin raising rates from near zero - an idea that other fellow policy-makers have indicated they support.
"I'm not convinced, personally, that we want to do that, or it is healthy to do that because it might create expectations that we can accomplish it on our own," he said, referring to the goal of significantly lowering unemployment. "And even if I were convinced, which I'm not, then I'm not sure how you come up with a specific number."
Fisher also said a short-term deal to avoid the fiscal cliff might stave off the most dire economic outcomes, but would not solve the problem.
"The private sector and American business community are poised to expand," he said. "But they will not do so as long as we have a government that cannot resist the temptation to devise a politically convenient patchwork instead of laying out a convincing, reliable, long-term program that job creators and consumers can count on and plan around."
(Reporting By Alister Bull; Editing by Andrea Ricci and Diane Craft)