(Reuters) - Policymakers at the Federal Reserve continue to weigh options on monetary policy, and have not agreed at this point to unleash a new round of stimulus, a top Fed official opposed to more monetary easing said on Tuesday.
“In terms of further easing, nothing has been decided,” Dallas Federal Reserve Bank President Richard Fisher told Reuters in a phone interview. “Nothing is predestined.”
Markets are looking to Chairman Ben Bernanke’s scheduled speech at the Kansas City Fed’s annual policymaker meeting on Friday for clues on the U.S. central bank’s next move. The Fed has kept rates near zero since December 2008 and has promised to keep them there until at least late 2014 to nurture a weak recovery.
Many policymakers felt new action would be warranted “fairly soon,” according to minutes from the Fed’s policy-setting committee meeting on July 31 and August 1, and most economists expect the Fed to at least pledge to keep rates low for even longer when policymakers next meet in September.
Fisher, who does not have a vote this year on the Fed’s policy-setting panel, said markets are addicted to monetary easing, and the Fed should not oblige them.
Likening the effects of monetary easing to the prescription drug Ritalin, used to calm children who otherwise have trouble focusing, he warned that doing too much will do more harm than good.
“We would like to have orderly financial markets in order to lead us out” of economic malaise, he said. “What we need to think about are the negative side effects” of doing still more easing, and such effects are already evident, he said.
By continuing to push down on interest rates, Fisher said, the Fed “lulls the government to sleep,” when what is really needed is for lawmakers to make budget and other fiscal decisions that provide businesses the certainty they need to make critical hiring decisions.
“They want an easy fix,” he said, of markets’ desire for further easing.
Fisher on Monday released a paper he commissioned, by former Bank for International Settlements chief economist William White, that argued against ultra-easy monetary policy.
Policymakers will get two critical pieces of information in early September.
The European Central Bank holds a policy meeting on September 6 and is expected to outline its plans to help buttress struggling euro zone economies, providing some insight on risks to the U.S. recovery from the ongoing debt crisis there.
The next day policymakers get a read on the state of the U.S. labor market, when the U.S. government releases its monthly jobs report.
High unemployment, at 8.3 percent, has been a key focus for Fed policy doves as they argue strongly for more easing to try to boost jobs.
Fisher repeated on Tuesday that further easing is unlikely to put more people back to work, because businesses cannot make plans for hiring until Congress provides clarity on the long-term outlook for government spending and taxes.
“The solutions to our problems do not lie in the monetary sphere,” he said. “The solutions lie in getting our fiscal house in order....Otherwise, we are just running the presses.”
It’s an argument he has made before, but has not made much obvious headway. Several of his colleagues, including Bernanke and Fed Vice Chair Janet Yellen, agree that monetary policy is no panacea for a struggling economy, but argue that there is still scope for it to help.
On September 12 and 13 policymakers will sit down for more debate. Several other policy hawks, including the Richmond Fed’s Jeffrey Lacker and the Philadelphia Fed’s Charles Plosser, are expected like Fisher to argue against more easing.
“The group makes a final decision,” Fisher said.
Reporting by Ann Saphir; Editing by Chizu Nomiyama