Richard Fisher: Market Now Realize There is No QE Infinity

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Dallas Federal Reserve Bank President Richard Fisher spoke with FOX Business Network’s (FBN) David Asman about quantitative easing and tapering the Federal Reserve’s bond-buying program. Fisher spoke about when tapering might begin, and said, “I would have liked to have seen this start at the last meeting…but I think we are headed in that direction in the way I look at the marketplace and the way I see what’s happening in the economy.” Fisher also discussed the recent rise in interest rates, saying, “I think the market has come to realize, first, that there is no QE infinity” and “secondly, the economy is improving.”

Richard Fisher: Market Now Realize There is No QE Infinity

On when tapering might begin:

“I would have liked to have seen this start at the last meeting, so I am inclined if the data keeps coming in the way it’s coming in, from my perspective – and remember I am not a voter this year, I am next year – but I still have a voice at the table like all of us do under the gracious leadership of Ben [Bernanke] who solicits everybody’s opinion. If things continue along the path that it’s on now then I would argue tapering back as you would call it, or dialing back the amount of purchases and the degree to which one would do so of course I think is subject to some calculation and I’m not willing to talk about that right now but I think we are headed in that direction in the way I look at the marketplace and the way I see what’s happening in the economy.”


On the increases in interest rates:

“I think the market has come to realize, first, that there is no QE infinity, which is the subject that was on everybody’s tongue not too long ago. Secondly, the economy is improving.  We’re seeing better numbers in the economy.  You would expect to see a steepening of the yield curve as you go further out in maturities. So, I think there’s a combination of course at play here David.  And this is something that we’ll have to discuss and analyze as we prepare for the next Open Market Committee. But that is what’s occurring right now.


On whether the Fed has become too concerned about what Wall Street does:

“As you know I came up through the markets. I am the only member of the Federal Markets Committee that was a market operator, ran a hedge fund.  I am very sensitive to this subject. I think the central bank of the United States, the Federal Reserve should be focused on the real economy. The financial economy will adjust if we do our job right  and we conduct monetary policy in a responsible way which we all aim to do then the markets will adjust around it and they will appreciate what we do. But I am not one that sits at the table and says, ‘gee the dealer surveys are telling us this,’ or we have to worry about major shareholders or analysts sending out a signal that if you just tweak interest rates a little bit or dial back the program we have, we are going to have a severe reaction God save us. I think that’s not the right way to run policy. I’m not saying that’s the way we do it. We should always be focused on the real economy, what’s best for the working men and women of this country, what’s best for engendering prosperity for this country and not creating inflationary pressures at the same time.”


On the Fed’s PR effort to try and convince people they were not going to begin tapering to calm the fears of the stock market:

“I think I was the first to speak after the chairman’s conference and if you remember I warned about being tested by the feral hogs of the marketplace and what I mean by that is the animal spirits of the marketplace they can sometimes try to test the central bank and the markets and I don’t think we shrugged, we just let the markets settle down and that’s what happens in a marketplace. Now the $64 trillion question right now is when does the Federal Reserve, that is our body, the FOMC decide to instruct the New York desk to dial back the amount of purchases and the answer is it’s an ongoing discussion and we’ll just have to see what we agree.”


On whether current Fed policy favors the rich at the expense of savers and the middle class:

“I have argued that myself both at the table and publicly. That’s one of the costs of this policy. I think we’ve made it great for the smart investors like Warren Buffett and what I call the rich and the quick – you give them free and abundant money, they’re going to take advantage of it. The real question is have we regenerated the engine of job creation? You know my answer there, the Fed is necessary but not sufficient. Unless we have fiscal policy that incents businesses and those that hire and put people to work to take the cheap and abundant money we have created and not just speculate and I mean that in a neutral term about investing but also just building plant and equipment and getting their businesses going again, then we haven’t done our job. And I don’t think we have seen that to the degree we’d like to but we certainly have made it much easier for those that are clever and have abundant  capital already to take advantage of these low income interest rates. Hopefully that will translate into more business activity. The one thing that has happened and this is very clear is obviously that the housing market has turned. And that has done well, it helps consumption, it helps the homeowner and that’s been a positive effect of what the Fed has done at least in the first tranche that we have undertook and the question is the efficacy of additional purchases as we go through time.”


On whether there is still a zero percent chance that he would replace Ben Bernanke as Fed Chairman:

“I think I am -10% now.”


On what the Fed could do to pressure interest rates to go down if they continue to rise:

“First of all, it’s a question of where, only the market really knows where rates should be.  We have artificially suppressed rates.  On top of a 30-year rally in the bond market, we have to realize, rates peaked 30 years ago, a little over 30 years ago at almost 16 percent. So at the end of this very long bull market, in order to revive the economy and create a wealth effect and all these things that those that argued for this program argued, we then went through Operation Twist and we began to buy $85 billion a month in securities. And that has driven interest rates to not only lows of recent memory, but the lowest rates in 237 years of United States history. Obviously, that’s not sustainable.  And any trader or any investor worth their salt would know that this cannot go on forever. So it’s a question of normalization.  The real issue is does this hurt Main Street? Does it hurt the recovery of the economy? And we’ll just have to see. I would argue that we are recovering, that employment is picking up.  We’d all like to see it happen more quickly. But remember, the balance sheets of corporations, publicly traded, privately financed, they’ve all restored themselves.  They’ve taken advantage, the smart ones, and that’s almost everybody in the private sector have rebalanced their balance sheets, cleaned up the liability side of their balance sheet. I like to say, as you know, they’re ripped, they’re muscular, they’re ready to go.  And all they need to do is see some growth in final demand.  We’re seeing better consumption numbers.  The housing market has improved, although it had a little bit of a dip, according to one of the statistics that came out today.  But it is on an improvement mend. And these companies are lean and mean and ready to go.  But the important thing is their balance sheets have been cleaned up.  And, uh, that you can give us credit for your you can criticize us for, but that, indeed, is what’s happened.”


On recent reports from the San Francisco Federal Reserve that suggest bond buying and money printing has a very minimal effect on the GDP:

“I argued that when I argued against this program so I am happy to see and they have one of the best research departments in the entire Federal Reserve system. The point is we’ve gone through this program, interest rates have been at historic lows, we’ve had a secular trend as well as this final crescendo, which was assisted by the Federal Reserve program. I think it certainly helped corporations clean up their balance sheets.  I don’t think there’s any question about that. At the same time, there were some costs.  Savers have been hit, small banks and other intermediate bank sizes have been hurt in terms of their interest rate margins. It has exacerbated that decline in interest rate margins that occurred over the last 20 years.  So there are costs and benefits.  Again, the benefits of QE3 and the efficacy of that program are constantly being analyzed and we’ll just see what the committee as a whole, because it is a committee of 19 people, decides under Chairman Bernanke’s leadership in September and in subsequent meetings.”

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