Federal Reserve Bank of Dallas President Richard Fisher said monetary policy is proving more beneficial to growth while reiterating his opposition to a Fed decision to increase easing by purchasing more bonds.
“The fact is, there is some traction now in the economy” from record-low interest rates, Fisher said in an interview today in Washington. “We have a 2-plus-2 economy. 2 percent inflation, a little bit less than that, 2 percent growth,” he said. The economy is “very different from what the Japanese have had for quite some time.”
The Federal Open Market Committee has pushed the main interest rate close to zero and expanded Fed assets to a record $2.97 trillion to fuel growth and reduce 7.8 percent unemployment. Policy makers are debating whether to continue stimulus this year or stop adding to it.
Fisher, one of the most outspoken critics within the Fed of unprecedented stimulus, said he would have voted against the FOMC’s decision last month to expand its bond-buying program to include Treasuries.
“I was one of the people who argued against it,” Fisher said. He doesn’t vote on policy this year.
Stocks rallied as U.S. housing starts jumped and jobless claims fell more than forecast, bolstering optimism in the world’s largest economy. The Standard & Poor’s 500 Index (SPX) gained 0.6 percent to 1,480.94 in New York. Yields on 10-year Treasuries rose seven basis points, or 0.07 percentage point, to 1.88 percent.
The economy picked up across much of the country last month, boosted by auto and home sales, even as the outlook for unemployment showed few signs of improvement, the Fed said yesterday in its Beige Book business survey.
“There’d been some slippage,” Fisher said, adding “the traction’s beginning.”
Business hoarding of liquidity is still inhibiting the full impact of Fed stimulus, Fisher said. Those funds are “not resulting in job creation because the uncertainty stems from fiscal uncertainty,” he said, referring to a legislative deadlock over federal taxation and spending.
The FOMC at its Dec. 11-12 meeting linked its policy to economic indicators for the first time. Officials expect to keep interest rates near zero as long as the unemployment rate is above 6.5 percent and inflation is projected to be no more than 2.5 percent, the committee statement said. The FOMC previously said it anticipated keeping rates low through at least mid-2015.
Fisher said he was pleased with how markets had responded to the inflation side of the Fed’s statement. In January, policy makers had issued a statement that their long-run goal on inflation was 2 percent, and the 2.5 percent threshold on inflation risked conflating the two goals, he said.
“I was a little concerned,” said Fisher. “My argument was it would confuse the markets.”
“People were still hanging their hat on the 2 percent number, which is good,” said Fisher.
Fisher, 63, dissented twice in 2011 against moves to push down long-term borrowing costs and to keep the benchmark interest rate near zero for a prolonged period.
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