Dallas Federal Reserve Bank President Richard Fisher, one of three members of the FOMC who dissented from the committee's decision last week to keep short-term interest rates exceptionally low through mid-2013, says he voted "no" because he worries the policy will add to business uncertainty and limit job creation at a time companies already face high uncertainty from the fiscal problems in Washington.
See the text of the speech at the bottom of this story.
In a speech in Midland, Texas, today, Fisher says that uncertainty will only be made worse if businesses come to "suspect...the central bank is laying the groundwork" for future inflation.
"It will be devilishly difficult for businesses to commit to adding significantly to their head count or to meaningful capital expansion in the United States until clarity is achieved on the particulars of how Congress will bend the curve of deficit and debt expansion...are revealed," he said. "No amount of monetary accommodation can substitute for that needed clarity. In fact, it can only make it worse if business comes to suspect that the central bank is laying the groundwork for eventually inflating our way out of our fiscal predicament rather than staying above the political fraythus creating another tranche of uncertainty."
Fisher, a well-known inflation "hawk" at the Fed, says he did not raise concerns about higher inflation "in the foreseeable future" at the August FOMC meeting -- "My concern is not with immediate inflationary pressures."
Rather, Fisher says, the FOMC should have stood pat on its "extended period" language.
"There is abundant liquidity available to finance economic expansion and job creation in America. The banking system is awash with liquidity," he says. "I do not believe it wise to commit to more than that, or to signal further accommodation, when the cheap and abundant liquidity we have made available is presently lying fallow, and when the velocity of money remains so subdued as to be practically comatose. My concern is with the transmission mechanism for activating the use of the liquidity we have created, which remains on the sidelines of the economy."
He says a lack of progress on fiscal problems in Washington is the reason for weak job creation and called on political leaders "to figure out the way to contain the nations runaway deficits and public debt accumulation."
"I posit that nonmonetary factors, not monetary policy, are retarding the willingness and ability of job creators to put to work the liquidity that we have provided," he said.
Businesses right now "simply cannot budget or manage for the uncertainty of fiscal and regulatory policy," Fisher says.
Fisher also says he raised concerns about a "Bernanke put" at the meeting -- that the central bank is keeping interest rates low to help boost stock prices.
"Some cynical observers might interpret such a policy action 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," he says. "I believe my FOMC colleagues share this view."
Philadelphia fed bank president Charles Plosser and Minneapolis bank president Narayana Kocherlakota also voted against the FOMC decision in August.