Fed President Fisher Candidly Reviews Monetary Policy

Federal Reserve

Source: http://www.flickr.com/photos/ken_mayer/

Dallas Federal Reserve Bank President Richard Fisher wears his economic policy on his sleeve, and he has no intention of tamping down his views when he rotates into a voting position on the Federal Open Market Committee (or, FOMC) in January. Fisher previewed his stance in an interview Monday with a private, educational foundation, the Library of Economics and Liberty.

“I’m very worried about this,” Fisher said of the Fed’s bond-buying program, “and I expect that my own voting behavior will reflect this concern that I just stated. I don’t think these are programs that should be continued, and I worry about the fact that we’ve already painted ourselves into a corner which is going to be very hard to get out of.”

The Fed policy of purchasing $45 billion in long-term Treasury securities, and $40 billion in agency mortgage-backed securities per month was altered in December. At the FOMC meeting for December, the board voted for an overall program reduction of $10 billion per month. Starting in January, $40 billion and $35 billion will be the pace of purchasing long-term Treasury securities, and agency mortgage-backed securities, respectively.

In an interview on Fox Business‘ “After the Bell,” Fisher discussed the taper. He said he would have voted with the majority and supported the decision, but did not think $10 billion went far enough. I would have argued for $20 billion,” Fisher said. “I think the market could have digested that.”

Fisher explained his views in greater detail during Monday’s interview. He does not believe the Fed should be involved in “deciding which assets you should invest in,” but does admit he approved of the first round of mortgage-backed securities purchases because it helped stimulate the economy.

“But we are now buying $85 billion a month in Treasuries and mortgage-backed securities. I have been against that program. I’ll continue to be against that program, mainly because I don’t think the benefits are equal to the costs of our having printed so much money and expanded our balance sheet to over $4.2 trillion.”

Fisher went on to say that as a result of the purchases, money goes out into the economy, returns “in terms of excess reserves,” and becomes stored as such. The Fed “is required to think in the long term,” Fisher said, and it is the long-term that concerns him. Inflation is not a worry, currently, but the missive of “long run, long run, long run” Congress gives the Fed is because, although there is an exit strategy, “ it’s a theoretical exit strategy. It’s never been done before. And I’m worried about the long-term consequences of having all that money sitting out on the sidelines.”

In Fisher’s opinion, the policy has been a boon for the rich, and investors. “It hasn’t done what we wanted it to do, which is lead to greater job creation for the two middle income quartiles. And that’s who we should be working for as a central bank. We work for the American people, not for the rich.” Fisher ended his remarks about his future voting, and views on the taper with his usual aplomb, asking, “ Is that outspoken enough for you?”