Dallas Fed President Richard Fisher says uncertainty, not Fed policy, is hampering the U.S. and global economy.
This uncertainty is twofold, he said during a speech before the National Association for Economists on Monday. It stems from the wild display of dysfunction among our elected officials in Washington over the debt ceiling debacle and from the sovereign debt crisis that has spread across Europe with no real end or viable solution site. (See: Europe's Crisis Grows As Governments Refuse To Offer Real Solutions)
But there is reason to be hopeful, Fisher tells The Daily Ticker's Aaron Task during an exclusive interview recorded after the speech.
Hope on the Home Front
Fisher believes the time has come for Congress to work together and step up to the plate to boost the economy, because the Fed has done all it can do. (See: "We've Done Our Job": Why Dallas Fed President Fisher Opposes More Action)
"We've done our job here at the Central Bank.… I think it is very very important that the fiscal authorities do the same," he says acknowledging it is not going to be easy for today's divided Congress to reach consensus. "They are going to have to figure out a way to goose up the economy. That is goose up the recovery at the same time they solve their long-term fiscal imbalances…. I am encouraged that they are going at it hammer and tong."
Fisher is not the first to cite the negative impact uncertainty can have on the economy. But what's surprising is that he does list one case where certainty can also have negative consequences. Fisher dissented from the FOMC's decision last month to keep rates near zero until at least 2013. He says there are "two sides to every coin" and "felt the cost of that pronouncement exceeded its potential benefits."
Why? He cites two reasons:
- Low rates create a lack of incentive: "What incentive does it now give businesses to go out and borrow when they know rates will be held low for a very long period when they've got all this other uncertainty about them," he says. "They are unlikely to take what we've given them in terms of inexpensive, abundant capital and put it to work."
- The Fed's easy money poses a moral hazard: "We don't want to give the impression that there is a so-called 'Bernanke Put' and that is that every time the markets sell off that we'll jump in to relieve them."
Hope from Abroad
The good news as it relates to the European debt crisis is the fact that Fisher does not believe it will greatly impact the U.S.
"I don't think it's as severe an issue for us," he says. "This is a European issue."
To date, the Fed's discount window has not been overly active with European banks seeking to ease the liquidity crisis across the pond, he says. To date, at least, this is a big change from 2008 when the Fed lent 100s of billions to foreign banks.
"We hope they resolve it in a good way, but clearly it is very vexing for them and I don't want to comment on the way that they should comment on their own problems because again they are their own authority," says Fisher.