Richard Fisher, president of the Federal Reserve Bank of Dallas known for colorful analogies, spoke with Bloomberg Television on Wednesday, saying that “we’re at the risk of overburdening the central banks” and “we keep applying what I call monetary Ritalin to the system. We all know there’s a risk of overprescribing.”
Fisher also said that “we have done our job. We have done enough. Just doing more doesn’t solve the problem. The problem is engaging the transmission. We provided the gas, the gas tank is full.”
Fisher on how he feels about more quantitative easing:
“First of all, whether you are a hawk or a dove, whether you are the head of the Federal Reserve Bank of Boston or Dallas or one of the Federal Reserve governors, all of us are trying to figure out how to deliver on our mandate. We have a mandate from Congress to conduct monetary policy so as to keep price stability. All of us believe, including hawks like me, that the immediate threat to the system is not inflation …
“The other issue is: How do we fulfill the mandate to create the conditions to achieve full employment? That is where you have a difference of view and a discussion taking place. I should remind you it is a civil discussion, not like Congress where we beat each other to a pulp. We’re working very hard to get the right answer.
“I do have a different perspective. My perspective is fairly straightforward. We all understand the theory. The theory is that if you lower the cost of money or provide more money, you change the discount factors and it works its way into the stock market and there is a wealth effect … My point is that we have so much extra cash and reserves sitting on the sidelines, it is not being put to work right now.
The question is: What will incent people to use the copious amounts of money we put out there and step on the accelerator and move job creation forward when we have the fiscal policy uncertainty? I think we’re pushing on a string. It is a great risk that I am not only worried about, but the Bank for International Settlements wrote their entire annual report and concluded we are at the risk of overburdening the central banks.”
On what should be the appropriate prescription for the short term:
“The prescription word is the appropriate word. We keep applying what I call monetary Ritalin to the system. We all know there is a risk of overprescribing. And we have to worry about the long-term consequences of what we do. We have an enormous buildup in reserves. It is not being utilized right now. We have $1.5 trillion in excess bank reserves. Those bankers would like to put that money to work. We have 2 or 3 trillion dollars sitting on the sidelines in corporate America.”
On how to stimulate moving that money for constructive use:
“Very easily. You provide the incentive for the private sector to put people to work. That can only be provided by tax policy, fiscal policy, regulatory policy. I believe we have done our job. We have done enough. Just doing more does not solve the problem. The problem is engaging the transmission. We provided the gas. The gas tank is full. Who will incent the driver of this economy to step on the accelerator and move it forward? That is the private sector.” On what Dallas is doing differently that the rest of the nation can learn from:
“We have the same monetary policy as the other 49 states. Monetary policy is no different. Interest rates are the same here, same cost of borrowing, same mortgage rates, etc. What accounts for the difference? The answer is a different, at least at state level, fiscal policy, regulatory policy, more pro-business, more pro-job creation.