Dallas Federal Reserve Bank President Richard Fisher spoke with FOX Business Network’s (FBN) David Asman about the state of the U.S. economy and a possible third round of quantitative easing. Fisher talked about his banking speech last night to the Committee for the Republic Salon in Washington, D.C., saying the banks seemed very supportive of it and that, “After that speech last night, to our surprise and delight, the Dallas Fed Web site was so overwhelmed with requests for a copy of that speech, it actually broke down.” He also discussed the recent volatility in the stock market saying, “No one can explain day to day moves on a market, no matter how hard we try. It's a manic-depressive medium.” Fisher addressed whether bond buying would continue beyond 2013, saying, “I think the committee has to make that decision. And all of us will argue one way or another. As you know, I've been very reluctant on that front. But that's a decision made by the committee.”
Excerpts from the interview are below.
On why the market is doing so well even though the economy is only slowly improving:
“No one can explain day to day moves on a market, no matter how hard we try. It's a manic depressive medium. But the markets do tend to discount well in advance of what we mere mortals are able to do as individuals. And one can infer from a good day in the market some things; other times, you're not quite sure why. I'd be hazarding a guess. I have no idea why it performed so well… this American business economy is ready to roll. If it would just get some clarity, as you know, I've argued this many times, a little more clarity, a lot more clarity from the fiscal authorities as to what the cost of doing business is going to be and how they're going to be regulated, etc. They've got the fuel now and they've got plenty of fuel.”
On his banking speech last night to the Committee for the Republic Salon in Washington, D.C.:
“After that speech last night, to our surprise and delight, the Dallas Fed Web site was so overwhelmed with requests for a copy of that speech, it actually broke down. So the speech on the banks, I think, particularly with independent and the small and medium sized regional sized banks, they're very much supportive of the view we've articulated. And now it's really up to the lawmakers to take all the different perspectives here and figure out a way to make Dodd-Frank less onerous, less complex, simpler and more effective in preventing too big to fail.”
On whether the Fed will continue to print money beyond 2013:
“I think the committee has to make that decision. And all of us will argue one way or another. As you know, I've been very reluctant on that front. But that's a decision made by the committee.”
On how the Fed has failed to help the economic recovery:
“Well, I'm not sure we have failed. That's too strong a word…in terms of the efficacy, what we're doing is, again, we don't have control over this thing to the degree that some might want to see. We provide the fuel, but people have to be incented to use it. And in terms of the one area that many of us are always concerned about, in fact, everybody on that committee - and, of course, I'm an uber hawk - we don't see inflation occurring right now. What the real question mark is, the efficacy with which we're able to affect employment. And that is part of the mandate given to us by law. We have to operate under it. This is what the Congress demands of us. And on that front, I know we haven't gotten the results that I would like to see. And we have to continue to test that assumption, whether or not we're doing the right thing in order to affect higher levels of employment. I don't personally think it will work unless we get the cooperation from the political authorities who set taxes, how much they spend and how they regulate. And by that, I don't mean it as a negative comment on the Fed. I mean it just is not sufficient. It's necessary, but not sufficient.”
On the Dallas Fed’s proposal surrounding ways to handle “too big to fail banks”:
“Our proposal to the Dallas Fed was very simple, and that is to provide for the insurances that we provide to depositors. This is on the taxpayers' back, only would apply to the commercial banking operations of the large bank-holding companies or any bank-holding company. And we would only allow that specific commercial banking operation, that is where they take short-term deposits from the taxpayer that are guaranteed by the American taxpayer, take short-term deposits and intermediate to make longer-term loans, traditional commercial banking. Only that would be protected, by law, in terms of the guarantee on deposits and only that part of the operation would be allowed to borrow from the discount window at the Federal Reserve.
On whether his proposal is too close to the idea of Glass-Steagall:
“Well, it's not, because these large bank holding company institutions also engage in other kinds of business. They can be insurance, securities and all these other things, derivatives, special investment vehicles. It has to be made clear that any customer that subscribes on that side to their business has no insurance whatsoever from the taxpayer. It actually would sign a simple short form, which we presented yesterday. It's one paragraph long and a sixth grader could understand it and read it. And it would simply say that this money is placed at risk, will not be underwritten or guaranteed by the United States government.”