Tags: Fisher | Fed | Ritalin | monetary policy

Dallas Fed’s Fisher: Fed Should End its ‘Monetary Ritalin’

By    |   Friday, 01 March 2013 01:43 PM

Now is the time of the Fed to end its “monetary Ritalin,” says Federal Reserve Bank of Dallas President Richard Fisher.

“I think it’s really time to taper this off,” Fisher told CNBC. “It doesn’t mean stop it. We’re not going from Wild Turkey to cold turkey. But I do think we’ve run up to the limits of the efficacy of what we’re doing. It’s a good time to do it.”

The Fed is buying $85 billion of mortgage-backed securities and Treasury holdings a month in an effort to keep interest rates low and spur the economy and reduce unemployment.

Editor's Note: The Final Turning Predicted for America. See Proof.

“I call it monetary Ritalin,” Fisher said.

The Fed’s loose monetary policy has fueled the stock market, helping it rise to record highs. That’s its intent to a large degree, since rising stocks have created a “wealth effect,” but fundamentals to not underpin the stock market levels, he told CNBC.

“It’s a bit of an artificial support system.”

The low interest rates the Fed has created have failed to significantly lower unemployment, which is one of the Fed’s mandates, he noted. Rather than creating jobs, companies are using the cheap money for acquisitions, which usually don’t create jobs.

Although the economy is slowing improving, unemployment is falling too slowly, Fisher maintained. “It’s a slow growth economy, but it is improving. It’s being waylaid by factors like the payroll tax.”

The problem is not monetary policy, which has been the economy’s only fuel, he said. “It’s because of the uncertainty and the fog that’s been created by the fiscal authorities because people don’t know what their tax bill is going to be, what their costs are going to be.”

Bill Gross, co-chief investment officer at fund giant Pimco, thinks that the massive easing program of the Fed and other central banks has artificially raised asset prices. “At some point we have a pay a piper,” he noted.

But he thinks the Fed can unwind its accommodation smoothly. “I think it ends rationally and temperately,” Gross predicted.

Gross believes the Fed can pull out if its quantitative easing in steps. “The first step would be to reduce quantitative easing from $1 trillion to perhaps $600 billion and then $400 billion and all the way down to zero, perhaps in the next nine to 12 months.

“These are small steps. I was going to call them baby steps, but those are big babies,” he explained.

“The Fed basically is trying to ease its way out of this and produce a normalized economy and normalized market.”

Fed officials are divided over when to wind down their bond purchasing efforts, reports The Wall Street Journal, citing Fed minutes.

Some are worried that their loose monetary policy could lead to excessive risk taking and instability in financial markets, and argue that the Fed should slow its bond buying before the job market is completely healed.

The Fed has said it will keep rates low until unemployment drops to 6.5 percent if inflation is still low. But threats to the overall financial system could change that plan, according to The Journal.

More experts are sounding alarm bells about an increase in riskier investments, such as junk bonds, as investors assume more risk in a search for yield.

Editor's Note: The Final Turning Predicted for America. See Proof.

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Now is the time of the Fed to end its “monetary Ritalin,” says Federal Reserve Bank of Dallas President Richard Fisher.
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Friday, 01 March 2013 01:43 PM
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