* Fed's policies can't breed jobs unless uncertainties are
* Worried that large balance sheet could lead to attacks on
By Ann Saphir
GAINESVILLE, Texas, Dec 18 The U.S. Federal
Reserve's bond-buying programs alone cannot bring down too-high
unemployment, because there is too much uncertainty holding
businesses back from hiring, a top Fed official said on Tuesday.
"Quantitative easing is a necessary but insufficient tool to
spark job creation," Dallas Fed President Richard Fisher said at
the Gainesville Area Chamber of Commerce. "Employers will not
deploy the cheap and abundant capital on hand toward job
creation while there is so much uncertainty surrounding final
demand for the goods and services they sell."
Businesses are also holding back because of uncertainty over
the so-called fiscal cliff, he said, because they do not know
what their taxes will be or how government spending patterns
will affect them.
Fisher compared U.S. businesses, with access to liquidity
provided by an accommodative Fed, to a 2,200-pound bull named
Too Big to Fail that lives on Fisher's East Texas farm and whose
job is to breed the farm's Longhorn cows.
"Too Big has plenty of liquidity at his disposal; he's fully
equipped to do what we pay him to do," Fisher said. "But if we
put him on the opposite side of the fence from those pretty
cows, he's unable to perform."
"All the monetary accommodation we've made possible... will
not be used unless we get clarity and a reduction of uncertainty
through a resolution of the fiscal cliff," Fisher said.
The Fed last Wednesday said it would keep interest rates
near zero until unemployment -- now at 7.7 percent -- fell at
least to 6.5 percent, as long as inflation does not rise above
2.5 percent. It was the first time the Fed had picked a specific
marker for unemployment to guide policy.
It also said it would buy $45 billion in longer-term
Treasuries each month, on top of its monthly purchases of $40
billion in mortgage-backed securities, until it sees a
substantial improvement in the outlook for the U.S. labor
The Fed will fund the new Treasury purchases with an
expansion of its $2.9 trillion balance sheet. Under the expiring
"Operation Twist" program, the Fed bought an identical amount,
but paid for them with proceeds from sales and redemptions of
The program is expected to swell the U.S. central bank's
balance sheet to more than $3 trillion.
The sheer size of the Fed's holdings is "compounding the
difficulty of exit" from the Fed's current super-easy monetary
policy, Fisher told reporters after a speech here. "It might
even impair our balance sheet."
Under current low Treasury yields, the Fed books gains on
its bond holdings, and remits profits to the Treasury. If yields
rise, the Fed may no longer be able to remit profits to the
Treasury, he said.
"I worry that if we were to get into that situation --
please stress the word 'if' -- we might have more efforts to
politically interfere with our independence," he said. "I'm not
wiling to tolerate that risk."