Bloomberg News

Fisher Says Fed Has Ammunition If U.S. Turns ‘Horrific’

October 03, 2011

(Closes markets in seventh paragraph.)

Oct. 3 (Bloomberg) -- Federal Reserve Bank of Dallas President Richard Fisher said the central bank has “plenty of ammunition” left if the economic situation turns “horrific,” while reiterating his view the Fed has provided enough stimulus.

“We can expand the money supply to the Nth degree,” he said today in an interview with Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays. Still, the Fed has to be “cautious” with the stimulus it’s already provided, and now “it’s up to the fiscal authorities” to do their job.

Fisher reiterated his view that the central bank’s decision last month to push down longer-term interest rates may prove ineffective. He joined Fed presidents Charles Plosser of Philadelphia and Narayana Kocherlakota from Minneapolis in dissenting for a second straight month, posing the most opposition on the Federal Open Market Committee in almost 19 years.

“There is some minor momentum in the economy,” Fisher said. Business leaders he knows are saying “that they are barely moving forward, but they are not moving backward.”

Manufacturing in the U.S. unexpectedly accelerated in September as production picked up, easing concern the world’s largest economy is stalling, according to the Institute for Supply Management’s factory index released today.

In a program announced last month, the Fed plans to replace $400 billion of short-term debt in its portfolio with longer- term Treasuries maturing in six to 30 years. The plan is aimed at reducing borrowing costs and helping the world’s largest economy recover.

Bond Yield Falls

Treasury 30-year bonds rose after the biggest quarterly advance since 2008 as Europe’s sovereign-debt crisis and a sluggish U.S. economy spurred demand for the world’s safest assets. Yields on 30-year bonds fell 19 basis points, or 0.19 percentage point, to 2.73 percent at 4:59 p.m. in New York, according to Bloomberg Bond Trader prices.

“We’re seeing a flight to quality,” said Fisher, who called the U.S. “the best-looking horse in the glue factory.”

Europe’s debt situation could be a “tripwire” for the U.S., yet “markets have heavily discounted a lot that can go wrong,” Fisher said.

--Editors: James Tyson, Christopher Wellisz

To contact the reporters on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net; Kathleen Hays in New York at khays4@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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