Federal Reserve Bank of Dallas President Richard Fisher said he chose to vote with the majority of Fed policy makers last week after the panel acknowledged improvements in the U.S. jobs market.
The Federal Open Market Committee dropped the word “significant” from its description of “underutilization of labor resources” in its Oct. 29 statement following its most recent meeting in Washington.
In addition, wording was included indicating “we might well move to raise rates sooner than thus far assumed,” Fisher said in prepared remarks he is due to deliver in New York. “This neutered the adjective 'considerable' in stating the time frame under which we might act.”
Fisher and Philadelphia Fed President Charles Plosser dissented from the FOMC’s Sept. 17 statement because it retained a pledge to keep interest rates near zero for a “considerable time” after the end of bond purchases.
The pair, who each supported the Oct. 29 statement, have warned repeatedly that leaving rates too low too long risked causing financial instability and possibly excessive inflation.
Fisher said he urged his colleagues against reacting to October volatility in equity and bond markets. The Standard and Poor’s 500 Index of U.S. stocks lost 5.4 percent in five trading days through Oct. 15, and gained back 8.4 percent by the month’s end.
“I saw no reason for the Fed to react to the heightened volatility,” he said, adding that he “strongly advised my colleagues that we should be wary of any action we might take at the FOMC that would lead investors to assume there is a ’Yellen Put’ hidden in our pocket,” he said, referring to Fed Chair Janet Yellen.
The FOMC also agreed last week to halt bond purchases, closing out the Fed’s third round of so-called quantitative easing, designed to stimulate the economy by suppressing-term interest rates.
“I would rather we had never had QE3 in the first place,” Fisher said.
The program that helped swell the Fed’s balance sheet to about $4.5 trillion may yet prove perilous for financial markets and the economy, Fisher said, by having encouraged riskier investments. He urged the Fed not to return to bond buying should Congress fail to address long-term budgetary issues and the economy stumble again.
“Should the FOMC then try to compensate for fiscal authorities’ inability to act by provisioning still more monetary fuel, it may risk an explosion of speculative excess, or worse: an eventual inflationary conflagration, the debasement of money and the ruination of our economy and lifestyle,” Fisher said.
Fisher, 65, who rotates out of a voting seat on the FOMC at the end of this year and plans to retire next year, praised Yellen.
She “has proven herself in her role at the helm of the FOMC to be neither dove nor hawk,” he said. “She is impressively well-balanced and fully aware.”
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