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Exclusive: Fed's Fisher says still against new easing
November 7, 2011 / 10:51 PM / 6 years ago

Exclusive: Fed's Fisher says still against new easing

DALLAS (Reuters) - Dallas Federal Reserve Bank President Richard Fisher on Monday said his support for the Fed’s decision last week to continue efforts to push down borrowing costs does not mean he is a convert to the need for more easing.

Fisher voted with the 9-1 majority on the Fed’s policy-setting panel last Wednesday to hold a steady course on the central bank’s super-easy policy. It was a departure for the Texas central banker, who opposed the Fed’s easing in August and again in September.

“I already dissented, and everybody knows it. I didn’t support those programs and I haven’t changed my mind,” Fisher, 62, said in an interview with Reuters at the regional Fed bank’s headquarters.

“There was no new proposal, no new initiative, so therefore there was no reason to dissent,” he said. “But we didn’t take any new steps, and to me, that’s progress,” adding that if there had been a proposal to do additional easing, he would have opposed it.

Reuter Insider interview: link.reuters.com/dym84s

As if to signal just how comfortable he was with his vote last week, Fisher swung his legs over the arm of his leather chair partway through the interview and conducted the balance of it from a partially prone position.

His grounds for voting against the Fed’s decision in previous meetings were that what the economy needs is not lower interest rates but more clarity from lawmakers on the future of tax and regulatory policy.

Fisher said, as he has repeatedly, that the Fed has done its job, keeping rates near zero for nearly three years and buying more than $2 trillion in long-term securities to send borrowing costs down still further.

Fisher said he still sees the lack of clarity on U.S. fiscal policy as the biggest drag on U.S. growth.

But credit problems in Europe are also hurting, and not just because a slowdown in Europe could hurt U.S. exports.

“It’s one more inhibitor of confidence, it’s one more factor of uncertainty” that is holding back the recovery, he said. “We could make it worse by signaling we could inflate our way out of it or flood our way out of it.”

Europe’s debt problems are rattling world markets as investors worry that the latest hot spots in the 17-nation euro zone’s debt crisis could spiral out of control, toppling banks and spreading through the rest of the world’s financial industry.

“We are innocent bystanders on Europe, and right now we are sort of innocent bystanders on fiscal policy,” he said.

Last week the U.S. central bank lowered its growth forecasts, raised projections for unemployment, and said it was considering additional mortgage debt purchases.

The lone dissenter on Wednesday’s vote was Chicago Fed President Charles Evans, who called for more stimulus. He has suggested the Fed keep interest rates near zero until the unemployment rate reaches 7 percent, as long as inflation does not threaten to top 3 percent.

Fisher said he was skeptical of such a program, and more generally, of tying policy to specific economic indicators or forecasts.

Some have argued the Fed could publish forecasts for overnight interest rates as one way of guiding investors on its policy intentions.

“The real question to me is, what is practicable, not what is theoretically sound,” said Fisher, who before joining the Fed in 2005 was a money manager. Evans, by contrast, was an economics professor in his pre-central banker days.

“I don’t doubt Charles’ sincerity, but we come from different backgrounds.”

Saying the economy is “limping along,” Fisher said he sees about 2.5 percent to 3 percent growth for the rest of this year.

Though that is not fast enough to put much dent in an unemployment rate that has stayed a 9 percent or above for more than a year, it’s “highly doubtful” monetary policy can do much to help, he said.

“All it does is build up our balance sheet” and makes an eventual exit from easy policy more difficult, he said.

Most Wall Street economists believe the snail’s pace of recovery and weak U.S. jobs growth will push the Federal Reserve to undertake more measures to help the economy, according to a Reuters poll on Friday.

But Fisher, who will rotate into a non-voting spot on the Fed’s policy-setting panel next year, re-emphasized his opposition to a third round of quantitative easing, which would be known as QE3.

“QE3 is not going to happen in my book, unless it’s clear we have not provided enough liquidity,” he said.

Reporting by Ann Saphir, Editing by Chizu Nomiyama and Diane Craft

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