DALLAS: The Federal Reserve's recent decision to buy more Treasury bonds does not signal the U.S. central bank is on the verge of another round of easing, a top Fed official said on Wednesday, Sept 8.
Dallas Federal Reserve Bank President Richard Fisher told Reuters in an interview that in his view, only a financial system shock or some other unforeseen circumstance should push the Fed into doing more.
When the Fed last month began reinvesting proceeds of maturing mortgage-backed securities in U.S. Treasuries, some investors thought it was only a matter of time before the central bank went further.
Asked if further easing was in the cards, Fisher said "not necessarily."
Instead, Fisher, speaking in his 14th floor office surrounded by photos of himself with well-known figures like Queen Elizabeth, German Chancellor Angela Merkel and Sir Paul McCartney, said the decision was meant to avoid a "passive tightening" in which the Fed's balance sheet shrank.
Fisher said the recovery is still sufficiently weak to warrant ultra-low interest rates for the foreseeable future. He said he expects U.S. gross domestic product to grow at around a 2 percent annual rate in the second half of the year.
"That's not what we want. It's not robust enough to create a lot of jobs," Fisher said, recounting childhood memories of his father's recurring job losses. "The recovery is anemic, it's sort of listless."
The view that growth is slower than the central bank would like was also voiced on Wednesday by Minneapolis Fed President Narayana Kocherlakota.
Speaking to business leaders in Missoula, Montana, Kocherlakota described the recovery as "modest."
Kocherlakota's economic forecast was slightly more upbeat than Fisher's. He expects economic growth of 2.5 percent in the second half of this year and 3 percent in 2011.
WHITES IN RECOVERY'S EYES
Since the financial crisis of 2008, the Fed has lowered interest rates to almost zero and has flooded the banking system with liquidity by buying more than $1.7 trillion in housing-related and U.S. government debt.
In recent months, as the U.S. economic recovery appeared to falter, talk of the potential need for further Fed action has dominated the markets. Fisher suggested investors might be getting ahead of themselves, even if their forecasts for rates to remain low for a long time are on the mark.
"There is not going to be tightening until we see the whites in the eyes of the recovery," Fisher said. "That's a given in my book. People want to be certain that we're in a recovery mode before policy gets tightened."
By the same token, the Fed also should not take further easing action, which in the absence of another major shock would at best be futile and at worst stoke the threat of future inflation, he said.
"If we do our job, that alone does not solve the pathology in the economy. The economy is sick. It's suffering from employment anemia. There's a lack of vitality. We can do only so much," Fisher said.
Kocherlakota, for his part, estimated that more than a quarter of the U.S. unemployment rate is due to mismatches between workers' skills and locations and the jobs available. He said this is a problem that the central bank is ill-equipped to tackle.
"The mismatch problems in the labor market do not strike me as readily amenable to the kinds of monetary policy tools currently available to the Fed," he said.
Like Fisher, Kocherlakota will rotate into a voting seat on the Fed's policy-setting Federal Open Market Committee next year.
Fisher blamed political jostling in Congress for uncertainty about policy, causing businesses to be reluctant to hire new workers.
"The question is how much can the Fed do, and how much can the rest of the guys do?" Fisher said. "I think the Fed's done a lot. And I think it's time for the rest of the guys to get their act together." - Reuters
Dallas Federal Reserve Bank President Richard Fisher told Reuters in an interview that in his view, only a financial system shock or some other unforeseen circumstance should push the Fed into doing more.
When the Fed last month began reinvesting proceeds of maturing mortgage-backed securities in U.S. Treasuries, some investors thought it was only a matter of time before the central bank went further.
Asked if further easing was in the cards, Fisher said "not necessarily."
Instead, Fisher, speaking in his 14th floor office surrounded by photos of himself with well-known figures like Queen Elizabeth, German Chancellor Angela Merkel and Sir Paul McCartney, said the decision was meant to avoid a "passive tightening" in which the Fed's balance sheet shrank.
Fisher said the recovery is still sufficiently weak to warrant ultra-low interest rates for the foreseeable future. He said he expects U.S. gross domestic product to grow at around a 2 percent annual rate in the second half of the year.
"That's not what we want. It's not robust enough to create a lot of jobs," Fisher said, recounting childhood memories of his father's recurring job losses. "The recovery is anemic, it's sort of listless."
The view that growth is slower than the central bank would like was also voiced on Wednesday by Minneapolis Fed President Narayana Kocherlakota.
Speaking to business leaders in Missoula, Montana, Kocherlakota described the recovery as "modest."
Kocherlakota's economic forecast was slightly more upbeat than Fisher's. He expects economic growth of 2.5 percent in the second half of this year and 3 percent in 2011.
WHITES IN RECOVERY'S EYES
Since the financial crisis of 2008, the Fed has lowered interest rates to almost zero and has flooded the banking system with liquidity by buying more than $1.7 trillion in housing-related and U.S. government debt.
In recent months, as the U.S. economic recovery appeared to falter, talk of the potential need for further Fed action has dominated the markets. Fisher suggested investors might be getting ahead of themselves, even if their forecasts for rates to remain low for a long time are on the mark.
"There is not going to be tightening until we see the whites in the eyes of the recovery," Fisher said. "That's a given in my book. People want to be certain that we're in a recovery mode before policy gets tightened."
By the same token, the Fed also should not take further easing action, which in the absence of another major shock would at best be futile and at worst stoke the threat of future inflation, he said.
"If we do our job, that alone does not solve the pathology in the economy. The economy is sick. It's suffering from employment anemia. There's a lack of vitality. We can do only so much," Fisher said.
Kocherlakota, for his part, estimated that more than a quarter of the U.S. unemployment rate is due to mismatches between workers' skills and locations and the jobs available. He said this is a problem that the central bank is ill-equipped to tackle.
"The mismatch problems in the labor market do not strike me as readily amenable to the kinds of monetary policy tools currently available to the Fed," he said.
Like Fisher, Kocherlakota will rotate into a voting seat on the Fed's policy-setting Federal Open Market Committee next year.
Fisher blamed political jostling in Congress for uncertainty about policy, causing businesses to be reluctant to hire new workers.
"The question is how much can the Fed do, and how much can the rest of the guys do?" Fisher said. "I think the Fed's done a lot. And I think it's time for the rest of the guys to get their act together." - Reuters
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