Tags: Fed | Fisher | Easing | wrong | Medicine | Economy

Fed’s Fisher: More Easing May Be ‘Wrong Medicine’ for Economy

Monday, 08 Nov 2010 02:35 PM

The Federal Reserve’s decision to undertake a second round of large-scale treasury purchases may be prescribing the “wrong medicine” to the economy’s ailments, said Richard Fisher, president of the Fed bank of Dallas.

The 61-year-old regional bank chief, who votes on the rate- setting Federal Open Market Committee next year, identified a number of costs to the Nov. 3 decision, including a weaker dollar and perception the Fed is “monetizing” the government’s debt by effectively printing money to finance the shortfall.

“I asked that the FOMC consider that we might be prescribing the wrong medicine for the ailment from which our economy is suffering,” Fisher said in the text of a speech today in San Antonio. “The remedy for what ails the economy is, in my view, in the hands of the fiscal and regulatory authorities, not the Fed.”

While saying he could not be certain that several billion dollars of asset purchases would spawn job creation and demand, Fisher outlined a case against proceeding with such a step.

“I could envision such action would lead to a declining dollar, encourage further speculation, provoke commodity hoarding, accelerate the transfer of wealth from the deliberate saver and the unfortunate, and possibly place at risk the stature and independence of the Fed,” he said.

“For the next eight months, the nation’s central bank will be monetizing the federal debt,” Fisher said in his speech before the Association of Financial Professionals. “This is risky business.”

Loss Potential

“The more we engage in a policy of asset purchases that moves us further out the yield curve -- and the more we laden our balance sheet with price-sensitive assets -- the greater the likelihood of realizing a loss on our holdings,” said Fisher, who has been president of the Dallas Fed since 2005.

Even with those arguments, the regional chief said, “I respect the will of the committee.”

The Fed agreed last week to buy an additional $600 billion of Treasuries through June to help boost growth. Including Treasury purchases from reinvesting proceeds of mortgage payments, the Fed will buy a total of $850 billion to $900 billion of securities through June, or about $110 billion per month.

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The Federal Reserve s decision to undertake a second round of large-scale treasury purchases may be prescribing the wrong medicine to the economy s ailments, said Richard Fisher, president of the Fed bank of Dallas.The 61-year-old regional bank chief, who votes on the...
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Monday, 08 Nov 2010 02:35 PM
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