Dallas Federal Reserve President Richard Fisher told FOX Business's David Asman that Wednesday’s stock market plunge does not mean the economic recovery has been derailed.
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In an exclusive interview with FBN this morning, Fisher said it’s “way too premature” to consider another round of bond purchases known as quantitative easing, despite the recent market downturn that has seen the Dow Jones Industrial average lose all of its 2014 gains.
“From my perspective, it’s much too early to even think about another quantitative easing,” Fisher said. “As we’ve been saying for a long time, we’ve already fed the market too much Ritalin. And now [with the tapering] the market is correcting itself without our involvement. It’s way too premature to talk about another QE because the market’s actually doing the work.”
The Fed is winding down its monthly bond purchases this month, yet the recent market selloff prompted speculation that the Fed might be considering introducing another asset purchasing program signs of a weakening economy spread.
Fisher wanted to dispel those rumors.
A voting member of the Fed’s policy making committee, Fisher is known as a monetary hawk who dissented from the Fed at their last policy setting meeting in September. Nevertheless, he told FOX Business that his views on there being no need for a new QE are shared by other central bankers, including Fed Chair Janet Yellen and European Central Bank President Mario Draghi.
“There’s a limit to what monetary policy can do,” Fisher said. “And most central bankers say that…whether it’s me, or Janet Yellen, or the head of the European Central Bank [Mario Draghi] or the governor of the Bank of India.”
What’s really needed in the economy, according to Fisher, is reform of regulatory and tax policies that impede growth. “The real need is for structural reform of fiscal policy,” he said. “It’s up to the politicians to make the government reforms necessary to spur growth. We in the United States do not need more monetary stimulus.”
Fisher also addressed concerns that some have about the strengthening dollar. One of the Fed’s mandates is maintaining the value of the dollar. “There’s too much hand wringing about the strong dollar,” Fisher said. “It’s not at all clear that a strong dollar will hurt the economy. Many retailers buy their materials from abroad, and a strong dollar helps them. So it’s good for retailers, and the lower price of gasoline is very good for consumers and the economy.”
The bottom line is that Fisher believes that a healthy market can withstand a market selloff. Said Fisher: “A market correction doesn’t mean the economy is in trouble. Without mentioning any companies in particular, prices are getting more rational, and some very good companies are even being mispriced to the down side.”
These words could have a calming effect on a very jittery market, even if traders may be disappointed at Fisher’s desire to take away their “Ritalin.”
The Dow plunged more than 450 points at its lowest Wednesday as economic data added to worries of a global economic slowdown, among a host of other fears, not least the spread of the deadly Ebola virus. Each of the major indexes fell more than 2%, sending the S&P 500 and Nasdaq into negative territory for the year.
Adding to the Ebola concerns are fears over plunging oil prices and the potential impact of global economic weakness on U.S. earnings. The S&P 500 is on track for its sixth fall in eight sessions and is down nearly 8% since its Sept. 18 record closing high.
On Wednesday data that showed U.S. retail sales and producer prices fell in September, while manufacturing activity in New York slowed to its weakest pace since April.