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Dallas Fed Chief: Operation Twist Unlikely to Work

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In a further sign of the tension and dissension among the regional presidents of the Federal Reserve, The Associated Press is reporting Dallas Fed President Richard Fisher opposed the central bank’s latest effort to boost economic growth because he fears it won’t work.

In a speech in Dallas on Tuesday, Fisher said the action taken last week, dubbed “Operation Twist,” and other recent Fed moves “are likely to prove ineffective and might well be working against job creation.”

At its Sept. 20-21 meeting, the Fed’s Open Market Committee voted, 7-3, to begin begin buying $400 billion of longer-term U.S. Treasury securities to put downward pressure on long-term interest rates and “help make broader financial conditions more accommodative.”

In his speech, Fisher, like Fed Chairman Ben Bernanke, called on Congress and the White House to do more to stimulate economic growth, according to the news service, but they disagree over whether the Fed should be taking action, as well.

Until Congress gets its “act together,” any policies adopted by the Fed “will represent nothing more than pushing on a string,” Fisher said.

Businesses and banks are already sitting on plenty of cash, Fisher said. They’re just too scared and cautious about the future to take risks. That suggests that cutting interest rates further from today’s near-record lows won’t do much to get banks to lend and businesses to invest, hire and expand, the AP writes.

Operation Twist, specifically, might signal to consumers that the Fed believes the economy is “in worse shape than they thought” and prompt them to hoard money, Fisher said.

The news service reports that when asked if he saw signs of hope for the economy, Fisher cited the example of Texas, where the economy has generally outperformed the nation. He called for limited government and pro-business policies, without offering specifics. Fisher said both major parties shared responsibility for the economy’s troubles.

“Now we’re having a serious discussion, and it’s going to be crude and rough,” Fisher said. “I think we’re getting there, but it’s going to be tough, and we’re going to need leadership to get there.”

He said the Fed has already done just about everything it can to help the struggling economy.

“I wouldn’t say we’re out of bullets,” he said, “but whatever ammunition the central bank has left needs to be deployed very, very carefully.”

Fisher was joined in late August by Kansas City Fed President Thomas Hoenig, a nonvoting member, in saying “monetary policy can’t be expected to cure all that ails the economy, and shouldn’t be used to target high unemployment.”


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