Federal Reserve Bank of Dallas President Richard Fisher said the central bank shouldn’t ease monetary policy whenever there is a big drop in U.S. stock prices, an action he said some traders might view as a “Bernanke put.”
“My long-standing belief is that the Federal Reserve should never enact such asymmetric policies to protect stock market traders and investors,” Fisher said today in prepared remarks in Midland, Texas. “I believe my FOMC colleagues share this view.”
Fisher’s comments offered his first explanation of his dissent from the Federal Open Market Committee decision last week to specify a date for their commitment to low borrowing costs. The Fed said the benchmark interest rate will stay in a range of zero to 0.25 percent at least through mid-2013. The new language replaces a prior promise to keep rates low for an “extended period.”
While seven members of the panel favored the action, Fisher, Charles Plosser of Philadelphia and Narayana Kocherlakota of Minneapolis voted no. The last time three voters dissented was on Nov. 17, 1992, under Chairman Ben S. Bernanke’s predecessor, Alan Greenspan.
“I was also concerned that just by tweaking the language the way the committee did, our action might be interpreted as encouraging the view that there is an FOMC so-called ‘Bernanke put’ that would be too easily activated in response to a reversal in the financial markets,” Fisher told a group of area community officials and business leaders today.
Standard & Poor’s
The Standard & Poor’s 500 fell 18 percent from the end of April through this year’s low on Aug. 8, when the index closed at 1,119.46.
Fisher said while he has concern “for the fragility of the U.S. economy and weak job creation,” there is little that monetary policy can do to address “uncertainty” about fiscal and regulatory policies that has held back employment growth.
“I believe what is restraining our economy is not monetary policy but fiscal misfeasance in Washington,” Fisher said. “Pointing fingers at the Fed only diminishes credibility. The ugly truth is that the problem lies not with monetary policy but in the need to construct a modern, appropriate set of fiscal and regulatory levers and pulleys to better incentivize the private sector to channel money into productive use in expanding our economy and enriching our people.”
‘Somewhat Slower Pace’
The FOMC last week lowered its economic assessment, saying it now “expects a somewhat slower pace of recovery over the coming quarters.” It left the door open for more action, saying officials discussed “the range of policy tools available to promote a stronger economic recovery.”
Fisher also said Texas’s economy has produced a net 50 percent of all U.S. jobs created since the recession ended in June 2009, though a higher percentage of state jobs pay close to the minimum wage. He credited the state’s tax and regulatory policies for helping to attract jobs. Texas Governor Rick Perry entered the 2012 presidential race this month.
“People have taken those jobs of their own free will, even though the jobs may not measure up to the compensation levels everyone would like,” Fisher said. “I draw the conclusion that private sector capital and jobs will go to where taxes and spending and regulatory policy are most conducive to growth.”
Fisher, 62, has been president of the Dallas Fed since 2005. When he held an FOMC vote in 2008, he dissented five times in favor of tighter policy.
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