Fed’s Fisher to Public: Insist on Change and It Will Happen

Federal Reserve

Richard Fisher, who earlier this summer warned of ‘feral hogs‘ in the market trying to bully the Federal Reserve, has once again pushed for the bank to end its asset purchasing program known as quantitative easing.

Fisher called the Fed’s current situation a bit of a Gordian Knot — a reference to the knot in Greek myth cut by Alexander the Great en route to his world conquest. As the President of the Dallas Fed, Fisher was referring to the bank’s current predicament of owning many assets and trying to find a will and a way to unwind that ownership.

The Federal Reserve under Chairman Ben Bernanke has been purchasing assets in the form of mortgage-backed securities and treasuries, attempting to drive rates lower to encourage markets to invest elsewhere while driving up employment. However, the reality has not been so clear. Fisher noted employment remains stale despite stock markets performing at record highs and the government’s failure to unleash the American growth engine. He said that, with unemployment having come down to 7.4 percent, the Fed should act this fall in ending quantitative easing.

He also criticized business conditions in the United States, telling an audience in Portland, Oregon, that, “I have argued that the principal force holding us back from being the absolute best economy, bar none, has been fiscal management that seems incapable of providing job creators with tax, spending and regulatory incentives to take advantage of the cheap and abundant fuel the Fed has provided so that businesses can put the American people back to work.” He noted that this failure in government action has been unable to incentivize the private sector to utilize the liquidity that the Federal Reserve has pumped into the economy.

As such, he asked for political pressure from the people to push legislators to act in a way that will cause what he called a ‘Horseshift’, or a changing of events that will make America the best race horse in the global economy. He also called for the Fed to untie its Gordian knot and wind down — or taper — quantitative easing. In Fisher’s opinion, they should “gird our loins to make our first move this fall. We shall see if that recommendation obtains with the majority of the Committee.” This move, Fisher said, should socialize the idea in markets, presumably to make the reality less panic-inducing when it comes.

He also touched on market distortions due to quantitative easing and the stock market boom, noting that their operation as dependent on the Fed is not healthy, saying, “A corollary of reining in this massive monetary stimulus in a timely manner is that financial markets may have become too accustomed to what some have depicted as a Fed ‘put.’ Some have come to expect the Fed to keep the markets levitating indefinitely. This distorts the pricing of financial assets, encourages lazy analysis and can set the groundwork for serious misallocation of capital.”

He was optimistic overall though, and painted a bright picture for the U.S. should government and Federal Reserve behavior change, telling an audience in Portland that, “We would experience what, tongue firmly but confidently in cheek, I would call “horseshift”: from being the stuff of an economic glue factory to becoming the wonder-horse that would outpace the rest of the world, putting the American people back to work and renewing the wonder of American prosperity. If you and your fellow citizens from whatever state you hail from insist upon it, it will be done.”

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