Bloomberg News

Fisher Calls Fed’s Target Rate Forecasts Misguided ‘Guesswork’

February 15, 2012

Feb. 2 (Bloomberg) -- Federal Reserve Bank of Dallas President Richard Fisher described policy makers’ forecasts for the central bank’s main interest rate as little more than speculation.

“These are not binding commitments,” Fisher said today in a speech in Austin, Texas. Fed officials’ projections for the economy and interest rates are “largely guesswork, especially looking out over a multiyear period.”

The Fed on Jan. 25 released federal funds rate forecasts by policy makers for the first time and extended its pledge to keep rates near zero at least through late 2014. Chairman Ben S. Bernanke today acknowledged improvement in some recent economic data while cautioning that the economy still faces risks, including fiscal deficits that in the long-run must be reduced.

Fisher, who doesn’t vote on policy this year, has been among the most vocal critics of Fed easing, dissenting last year twice against moves to push down long-term rates and to keep the benchmark U.S. interest rate near zero until at least mid-2013. He voted five times in 2008 in favor of tighter policy and said today he opposes the 2014 interest rate pledge.

“I resisted the notion of a need for a statement indicating that monetary accommodation be tied to a specific date, be it in mid-2013, late 2014 or any other,” Fisher said in comments prepared for the Headliners Club. “Instead, I feel that the key should be to calibrate monetary policy according to the state or condition of the economy.”

Fisher repeated his concern that monetary policy alone could do little to reduce U.S. unemployment, saying fiscal and regulatory policies have impeded job creation. Texas was one of three states that have regained jobs lost during the past recession, as well as North Dakota and Alaska, he said.

‘Inconvenient Truth’

The Dallas Fed president called the success of Texas in employment an “inconvenient truth” and the fruit of “prudent” fiscal and regulatory policy.

Fisher said he was “delighted” by the Fed’s decision last week to set 2 percent as an inflation objective, while not setting a specific target for the unemployment rate. The decision recognized that factors other than monetary policy influence the job market, he said.

“Explicitly acknowledging that monetary policy’s impact on employment is transitory and uncertain is a cardinal event,” Fisher said. “It signals to the markets that there are limits to the ultimate job-stoking efficacy of Federal Reserve policy.”

Bernanke said in a press conference last week that the Fed is considering buying more bonds to stimulate growth. Chicago Fed President Charles Evans told reporters today more asset purchases may be needed at a scale “more ambitious than most numbers being bandied about.”

Main Interest Rate

The Fed pushed down its target rate close to zero in December 2008 and has engaged in two rounds of asset purchases totaling $2.3 trillion to boost the economy and reduce the jobless rate that stood at 8.5 percent in December.

“To the extent that inflation is running below 2 percent, the Federal Reserve may have somewhat greater latitude to pursue accommodation,” Fisher said. “However, the past few years have demonstrated, yet again, that allowing inflation to rise by no means guarantees faster job growth.”

Fisher urged U.S. lawmakers to “get their act together, stop their shameful politicking, get on with putting their fiscal and regulatory house in order” to promote economic growth.

Fisher, 62, has been president of the Dallas Fed since 2005. His district includes Texas, northern Louisiana and southern New Mexico.

The Dallas Fed and the 11 other regional banks this week released unprecedented details about their presidents’ personal wealth. Fisher’s disclosure listed holdings exceeding $20 million, including millions of dollars in municipal bonds and 7,113 acres of land in states including Iowa, Missouri and Texas.

--Editors: James Tyson, Gail DeGeorge

To contact the reporter on this story: Steve Matthews in Atlanta at smatthews@bloomberg.net

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


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