Bloomberg News

Fisher Says Operation Twist Benefiting ‘Monied’ Interests

November 02, 2011

(Adds comments on mortgage bond purchases in eighth paragraph.)

Oct. 21 (Bloomberg) -- Federal Reserve Bank of Dallas President Richard Fisher said the central bank’s plan to buy $400 billion of long-term bonds while selling the same amount of short-term debt is benefiting financiers and not aiding job creation.

The bond swap program, known as Operation Twist for its goal of bending the yield curve, has “so far been of greater benefit to traders and large monied interests than to job- creating businesses,” Fisher said today in a speech in Dallas.

“I would submit that adding more liquidity, or making money still cheaper, is not the answer to our problems,” Fisher said, renewing his criticism of Congress and the White House who “have conspired over time, however unwittingly, to drive fiscal policy into the ditch.”

Fisher was one of three Fed policy makers to dissent from decisions in August and September to ease policy with unconventional tools. Central bankers last month discussed additional measures aimed at lowering borrowing costs, such as large-scale asset purchases and tying the Fed’s near-zero interest rates to economic indicators such as inflation.

Directing his remarks to “Republicans and Democrats alike,” Fisher, himself a former candidate for the U.S. Senate in Texas as a Democrat, said politicians “purchased their elections and re-elections with popular programs so poorly funded that they now threaten the economic well-being of our children and our children’s children.”

Not ‘Honorable’

“This is the opposite of honorable, and it must stop,” Fisher said in the text of remarks to the Dallas Friday Group, an organization of people in business.

Yesterday, Fed Governor Daniel Tarullo, who’s backed all of Chairman Ben S. Bernanke’s policy decisions for almost three years, said the central bank should consider resuming large- scale purchases of mortgage bonds to boost economic growth and help combat a “crisis” in employment.

Speaking to reporters after the event, Fisher said that “at present I am not similarly inclined” to support further purchases of housing debt. “I would not expect in my view the Federal Open Market Committee has to do something at every meeting,” he said. “Otherwise it gets out of control.”

Chicago Fed President Charles Evans and Eric Rosengren of Boston have also urged the policy-setting Federal Open Market Committee to increase its record stimulus in an effort to spur the recovery and bring down an unemployment rate stuck near 9 percent or higher for 30 consecutive months.

Fiscal Incentives

The Fed has “filled the tanks with the liquidity, or fuel, needed to create jobs,” Fisher said. “But only the fiscal authorities -- the Congress and the executive branch -- can provide the tax, spending and regulatory incentives to induce the private sector to step on the accelerator and engage the transmission of job creation.”

Fisher said that job creation, not inflation, is the most pressing concern for the United States. Measures of inflation, he said, are likely to “gravitate toward the 2 percent level.”

If, instead, inflation continued to spread, Fisher said he “will be first out of the box to advocate the removal of the substantial monetary accommodation now in place.”

The consumer-price index climbed 0.3 percent in September from the prior month, the Labor Department said Oct. 19 in Washington. Excluding volatile food and fuel costs, the so- called core rose 0.1 percent. That puts core inflation 2 percent higher than a year ago and total inflation 3.9 percent higher, the most since September 2008.

Fisher said the economy was “headed in the right direction slowly” and that if fiscal policy makers “get their act together” then “there is plenty of potential for confidence to be bolstered and propel the economy forward at an accelerating clip.”

Fisher, 62, became president of the Dallas Fed in April 2005. During his tenure he has dissented from decisions of the FOMC seven times.

-- With assistance from Scott Lanman in Washington. Editors: Carlos Torres, Vince Golle

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net; Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

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


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