Political gridlock is slowing US economic growth, impacting the confidence and budgets of businesses across the country, a top Fed official said in Hong Kong yesterday.
Dallas Federal Reserve Bank president Richard Fisher took a swipe at US politicians and their inability to cooperate, and accused them of impeding jobs growth.
In a question-and-answer session following a speech he gave at the Asia Society on forward guidance, Fisher referred to “our feckless Congress and poor government leadership” needing to get their act together.
“Someone has to provide the incentive to step on the accelerator and move the economy forward. And right now they’re stepping on the brakes,” he said. “And that’s Democrats and Republicans and the lower and the upper house and a president that just don’t work together. Until we have that, we will not have the confidence we need to proceed.”
Fisher added that if the US had the right fiscal policy, the country would have an “incredibly fast-moving economy”.
On the subject of the Fed’s projections for the market, Fisher said the US Federal Reserve must avoid being locked into calendar-based policy commitments and instead ensure its forward guidance is flexible enough to allow it to respond to changing conditions.
In his speech, Fisher said he worried that predictable commitments were unsound policy as they could lead to false complacency and market instability.
“I question if it is sound policy to remove all uncertainty or volatility from the market,” Fisher, a voting member of the Federal Open Market Committee (FOMC), said in his speech.
“At its worst, I fear calendar-based commitments can lead, perversely, to market instability by encouraging markets to overshoot, as they appear to be doing in some quarters at present,” Fisher said.
His stance against specific guideposts was an apparent stab at other Fed officials who have advocated such commitments – an approach the US central bank is backing away from in favour of more qualitative measures.
The market’s sensitivity to the Fed’s timing forecasts was in full view last month. Stock, bond, and currency markets were hit hard by comments from Fed chair Janet Yellen that an interest rate hike could follow around six months after the central bank ends its bond-buying stimulus, earlier than investors had expected.
Fisher said based on the current pace of the taper, the Fed’s quantitative easing would end in October, and that even after that is done, the central bank’s balance sheet would remain “quite large”.
Yellen, like her predecessor Ben Bernanke, has offered the markets forward guidance on policy to try to help people understand the direction and thinking of the Fed.
“Those who think we can be more specific in stating our intentions and broadcasting our every next move with complete certainty are, in my opinion, clinging to the myth that economics is a hard science,” Fisher said.
The Fed is currently winding down its quantitative easing, massive asset purchases that pump money into the economy. Monthly bond buying has been cut from $85 billion to $55 billion per month, a figure which Fisher, a long-time policy hawk, said was “still somewhat promiscuous”. (Reuters)