DALLAS FEDERAL RESERVE BANK PRESIDENT RICHARD FISHER TELLS FOX BUSINESS THAT HE WORRIES ABOUT HOW THE FEDERAL RESERVE WOULD BE PERCEIVED IF THEY MAKE A MOVE BEFORE 2012 ELECTION

Federal Reserve Dallas

Dallas Federal Reserve Bank President Richard Fisher spoke with FOX Business Network’s (FBN) David Asman and Liz Claman about the state of the U.S. economy and a possible third round of quantitative easing. Fisher discussed whether the Fed making a policy move now might be perceived as trying to help President Obama get reelected and said, “September is getting increasingly closer to the election and I do worry about perception…Even though I disagree with further expansion, if we were to have done it, I would have done it in August, even though I would have not supported it.” He also talked about Boston Fed President Eric Rosengren’s call for a third round of quantitative easing, saying he disagrees with this because while both of their plans are aimed at getting Americans back to work, “particularly now that inflation is not clawing at the door and is running a little less than 2%,…what good does it do for us to put more money in the system? To me we would just be pushing on a string.”

Excerpts from the interview are below.

On whether the Fed making a policy move now would be perceived as being politically motivated:

“We do not take any political input from anybody, whether it’s me or Eric Rosengren or more importantly of all, the chairman.”

On whether the Fed might be perceived as trying to help President Obama if it intervenes before the election:

“You’re right, there is a history of this and I do worry about that close to the election…. I know for a fact this is not true but I believe we could become perceived as such.  Even though I disagree with further expansion, if we were to have done it, I would have done it in August, even though I would have not supported it. September is getting increasingly closer to the election and I do worry about perception. But we are not being pressured in that way and we wouldn’t respond to that pressure if we were.”

On Boston Fed President Eric Rosengren’s call for a third round of quantitative easing:

“Eric and I are both trying to get it right even though we come from different perspectives. And that’s what’s the best thing to get the American people back to work, increase employment, decrease unemployment. Particularly now that inflation is not clawing at the door and is running a little less than 2%. We have a mandate given by Congress which is to create the monetary conditions for full employment, we are obviously far away from full employment. He has one perspective which I respect. I have another perspective which I know he respects. My perspective is we already have done a great deal. There is a lot of money sitting on the sidelines. We have had a huge build up in the banks’ reserves which are placed on the balance sheet of the 12 Federal Reserve banks for safekeeping. We have over a trillion and a half dollars there. We have copious amounts of cash on the balance sheet not being put to work. The real question is what good is it for us to accommodate more and put more money out of the system when what we are hearing from CEOs and business operators, public, private, big and small that the reason they’re not using it is because they can’t plan, there’s no certainty, there’s no clarity, they don’t know what their cost structure is going to be, they don’t know what their taxes are going to be, they don’t know what their healthcare costs are going to be. My point is this as long as this uncertainty exists… what good does it do for us to put more money in the system? To me we would just be pushing on a string.”

On what negative impact we’d see from a new round of bond buying:

“I don’t think it would have a positive effect since we have no clarity from Washington. If you looked at the Wall Street Journal this morning there was a great interview and the head of Kindred Healthcare said can’t plan, can’t spend, can’t hire. On his earnings call he said he couldn’t give any forward visibility because he can’t plan because of what is happening on the fiscal side. I think some of the damage that can be done is we would once again be sending a signal to those who have to make decisions, the Congress, Democrats and Republicans, the fiscal authorities that create the laws and regulations that they can keep going on. We’re basically subsidizing purchasing treasuries. We have up to 70% of certain treasury issues and we’re moving further out of the yield curve under Operation Twist. We can get to a point under the program my colleague outlined the other day of owning in his case if the numbers are as you report them over 40% of all the treasuries that are ten-year and longer maturity. That presents a long-term problem for when we want to get out of the securities in addition to the fact I’m not happy with the fact we are putting ourselves that far out in terms of buying securities in the first place because it keeps rates down, does not allow the market to rationalize and doesn’t give us get the true cost.”

On Senator Chuck Schumer’s comments that the Fed is the only game in town:

“I went to college with Chuck Schumer. We’re classmates and we’re friends. My response would have been ‘No, you are the only game in town.’ It is very dangerous when central banks, whether it is the Federal Reserve or any other central bank, becomes the only game in town. We are a monetary authority. We have limited powers, specific powers. Our powers only work if we can do our job and we have fiscal authorities who are responsible in their conduct. Right now as we all know both Democrats and Republicans for far too long have been reckless in their policy. We are necessary but we are not sufficient. Somebody has to incent the private sector to use the fuel that we provide, the high-octane cheap fuel that we provided and there is only one way to do it, through fiscal policy, tax, spend and regulatory policy. We are not responsible for that, they are responsible for that. That scares me when people say that.”