The President of the Federal Reserve Bank of Dallas, Richard Fisher, shared his thoughts concerning economic performance of the eleventh district and U.S. Monetary policy. The following are selected passages from his remarks before the Dallas Regional Chamber of Commerce.
Fisher's forecast:
...I’ll eschew making the prototypical forecast, except to note that from my perch at the Federal Reserve Bank of Dallas, I presently see that: a.) On balance, the data indicate improving growth and prospects for job creation in 2012. However, the outlook is hardly “robust” and remains constrained by the fiscal and regulatory misfeasance of Congress and the executive branch and is subject to a now well-known, and likely well-discounted, list of possible exogenous shocks—the so-called “tail risks”—posed by possible developments of different sorts in the Middle East, Europe, China and elsewhere. And b.) While price stability is being challenged by the recent run-up in gasoline prices—which has yet to be reflected in the personal consumption expenditure and consumer price indexes but may well make for worrisome headlines when February data are released—the underlying trend has been converging toward the 2 percent long-term goal formally adopted by the Federal Open Market Committee (FOMC) at its last meeting...
Fisher's thoughts on "QE3":
...Speaking of harmful if swallowed, I might add that I am personally perplexed by the continued preoccupation, bordering upon fetish, that Wall Street exhibits regarding the potential for further monetary accommodation—the so-called QE3, or third round of quantitative easing. The Federal Reserve has over $1.6 trillion of U.S. Treasury securities and almost $848 billion in mortgage-backed securities on its balance sheet. When we purchased those securities, we injected money into the system. Most of that money and more has accumulated on the sidelines: More than $1.5 trillion in excess reserves sit on deposit at the 12 Federal Reserve banks, including the Dallas Fed, for which we pay private banks a measly 25 basis points in interest. A copious amount is being harbored by nondepository financial institutions, and another $2 trillion is sitting in the cash coffers of nonfinancial businesses.
Trillions of dollars are lying fallow, not being employed in the real economy. Yet financial market operators keep looking and hoping for more. Why? I think it may be because they have become hooked on the monetary morphine we provided when we performed massive reconstructive surgery, rescuing the economy from the Financial Panic of 2008–09, and then kept the medication in the financial bloodstream to ensure recovery. I personally see no need to administer additional doses unless the patient goes into postoperative decline. I would suggest to you that, if the data continue to improve, however gradually, the markets should begin preparing themselves for the good Dr. Fed to wean them from their dependency rather than administer further dosage...[Continue]