Fed’s Fisher says QE taper should begin this Autumn
Head of the Dallas Federal Reserve Bank has said that the Fed is nearly ready to begin tapering off its quantitative easing programme, and that he believes this should begin this autumn.
In prepared remarks at a conference of pension fund administrators, Fisher was highly critical of the quantitative easing policy for doing little on the jobs front and tying the Fed into a "Gordion knot". Here's a key excerpt from his speech (our emphasis):
The challenge now facing the FOMC [Federal Open Market Committee] is that of deciding when to begin dialing back (or as the financial press is fond of reporting: “tapering”) the amount of additional security purchases. In his press conference following our June FOMC meeting, speaking on behalf of the Committee, Chairman Bernanke made clear the parameters for dialing back and eventually ending the QE program. Should the economy continue to improve along the lines then envisioned by Committee, the market could anticipate our slowing the rate of purchases later this year, with an eye toward curtailing new purchases as the unemployment rate broaches 7 percent and prospects for solid job gains remain promising.
Kindly note that this does not mean that the Committee would envision raising the shorter term fed funds rate simultaneously; indeed, the Committee has said it expects this pivotal rate to remain between 0 and ¼ percent at least as long as the unemployment rate remains above 6.5 percent, intermediate prospects for inflation are reasonable, and longer-term inflationary expectations remain well anchored.
Having stated this quite clearly, and with the unemployment rate having come down to 7.4 percent, I would say that the Committee is now closer to execution mode, pondering the right time to begin reducing its purchases, assuming there is no intervening reversal in economic momentum in coming months.
Fisher goes on to say that the biggest thing holding the US economy back from being the best in the world is the inability of fiscal policymakers to develop policies providing job creators with tax, spending and regulatory incentives to complement a prudent monetary policy. The Mexican government is run better than the US government, he said.
I have argued that whatever success we have achieved in clawing our way out of the “Great Recession” has been despite the fiscal and regulatory authorities. Ask any businessman or woman what holds him or her back and they will tell you it’s not monetary policy; it is that they can’t operate in a fog of total uncertainty concerning how they will be taxed or how government spending will impact them or their customers directly. And as to asking their opinion of the impact of regulation on their businesses, don’t even go there, unless you delight in hearing profanities.
On the topic of the next Fed chairman, Fisher said he has a high regard for the suggested candidates, but doesn't need a prima donna as chief – whoever is chosen will need to have "enormous humility" as Bernanke does. He added that more candidates are being considered than just those being named in the press (Larry Summers and Janet Yellen among the most prominent).