AUSTIN More monetary stimulus from the U.S. Federal Reserve would be the "wrong path," despite the threat the simmering European debt crisis is posing for the U.S. economy, a top Fed official known for his hawkish views on inflation said on Friday.
It is up to Congress and the President -- not the U.S. central bank -- to clean up the "yucky mess" that is the country's debt and fiscal problems, Dallas Fed President Richard Fisher said, reprising what is for him a frequent theme in public speeches.
"The Federal Reserve has done everything it can, and more, to reduce unemployment without forsaking our sacred commitment to maintaining price stability, or crossing over the monetary river Styx into full-blown debt monetization," Fisher told the Austin Chamber of Commerce. "From my standpoint, resorting to further monetary accommodation to clean out the sink, clogged by the flotsam and jetsam of a jolly, drunken fiscal and financial party that has gone on far too long, is the wrong path to follow."
The U.S. central bank stood pat on policy at its meeting Tuesday, leaving interest rates near zero, and continuing to signal that it will keep them there through at least mid-2013. One policymaker, Chicago Fed President Charles Evans, dissented, calling for further easing.
Speaking in Florence, Italy on Friday, Evans reiterated his call for the Fed to keep rates low until unemployment, now at 8.6 percent, falls below 7 percent, as long as inflation does not threaten to top 3 percent.
He also said that while the United States needs better fiscal discipline in the medium and long term, some "smart stimulus" would help a lot in the short term.
Fisher and fellow hawks Minneapolis Fed President Narayana Kocherlakota and Philadelphia Fed President Charles Plosser were the dissenters earlier this year as the Fed eased policy to jumpstart a slowing recovery.
Fisher on Friday said his votes were driven not by a fear that easing would stoke inflation but on concern it would not help on employment.
Inflation, he said, is headed back down toward the Fed's 2 percent target, and recent economic indicators suggest domestic demand is strengthening.
Still, souring conditions in Europe and slowing growth in emerging economies like China and Brazil threaten to knock the U.S. recovery off course again, Fisher said.
Financial markets remain on edge about Europe's ability to put a floor under a bond market selloff that is pushing borrowing costs for countries such as Italy and Spain toward unsustainable levels.
But there is little U.S. policymakers can do but "pray that fiscal and monetary authorities abroad get it right," Fisher said. To reporters after the speech, Fisher said he does not envision the need for a monetary policy response to Europe's crisis, unless there were to be a panic of some sort.
In testimony at the U.S. House of Representatives Friday, the New York Fed's powerful chief, William Dudley, made a similar point.
"I don't anticipate, even if the crisis in Europe were to worsen, further steps on the part of the Federal Reserve at this time," Dudley told the panel of lawmakers.
Speaking in the Texas capital about 1,000 miles away, Fisher warned against the Fed opening the spigots of liquidity further to get the economy moving again, when the biggest culprit in his view was uncertainty over tax policy, given the huge national debt.
"It may provide immediate relief but risks destroying the plumbing of the entire house," said Fisher, who often uses colorful metaphors and literary references to enliven his speeches. "Better that the Congress and the president -- the makers of fiscal policy and regulation -- roll up their sleeves and get on with the yucky task of cleaning out the clogged drain."
Fisher and his fellow hawkish dissenters rotate off the Fed's policy-setting panel next year, and only one policy hawk -- Richmond Fed President Jeffrey Lacker -- will rotate in.
The change in voting line-up means the panel will lean more dovish than it did last year, suggesting Fed Chairman Ben Bernanke may have more support for further easing in the New Year.
(With reporting by Valentina Za in Florence, Italy and Pedro Nicolaci da Costa in Washington, Editing by Chizu Nomiyama; Diane Craft)