Tags: Fed | Fisher | US | Economy | Expanding | Stall | Speed

Fed’s Fisher: US Economy Expanding Near ‘Stall Speed’

Tuesday, 19 Oct 2010 01:39 PM

The U.S. economy is operating at close to “stall speed,” said Federal Reserve Bank of Dallas President Richard Fisher, who cast doubt on the effectiveness of additional monetary easing.

Fisher said the world’s largest economy will expand at a rate “slightly above” 2 percent in the third quarter and will then accelerate to a “moderate” pace after that.

“The efficacy of further accommodation using nonconventional policies is not all that clear,” Fisher said in the text of a speech today in New York. There is “a great deal of legitimate debate” still to take place, he said in remarks similar to those he made in Minneapolis on Oct. 7.

Fisher is among the regional Fed presidents who have expressed reservations about further easing to reduce a jobless rate lingering near a 26-year high. Fed Chairman Ben S. Bernanke, speaking last week in Boston, said that there would appear “to be a case for further action,” to achieve the central bank’s mandate for stable prices and full employment.

“There is abundant liquidity in our economy,” as a result of Fed policies, said Fisher, 61, who will vote on the Federal Open Market Committee next year under a rotating system for regional bank chiefs. Yet “we are barely cruising above what we at the Dallas Fed call ‘stall speed.’

Fisher said he’s concerned that the Fed’s policies may inadvertently be encouraging U.S. companies to invest “cheap money” in operations overseas, where returns on investment are higher.

Vexing Question

“The vexing question is: Why isn’t this liquidity being utilized to hire new workers and reduce unemployment,” Fisher said. Many of the corporations he surveys “report that the most effective way to deploy cheap money raised in the current bond markets or in the form of loans from banks, beyond buying in stock or expanding dividends, is to invest it abroad where taxes are lower and governments are more eager to please.”

Fisher’s concerns that another round of large-scale asset purchases may not have much of an effect are shared by Fed bank presidents Thomas Hoenig of Kansas City, Philadelphia’s Charles Plosser and Narayana Kocherlakota in Minneapolis.

Minutes of the Fed’s most recent meeting show that many officials thought further steps to help the economy would be appropriate, so long as growth remains too sluggish to bring down unemployment or inflation continues to come in too low.

The dollar has slumped on speculation the Fed will buy Treasuries to lower borrowing costs and bolster the recovery. The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency against six major counterparts, has fallen 6.4 percent since the end of August.

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The U.S. economy is operating at close to stall speed, said Federal Reserve Bank of Dallas President Richard Fisher, who cast doubt on the effectiveness of additional monetary easing.Fisher said the world s largest economy will expand at a rate slightly above 2 percent...
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2010-39-19
Tuesday, 19 Oct 2010 01:39 PM
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