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Dallas Fed president: 'We're moving forward'

By Neil Irwin
Washington Post Staff Writer
Monday, February 21, 2011; 9:25 PM

DALLAS - In six years as president of the Federal Reserve Bank of Dallas, Richard Fisher has been one of the central bank's most outspoken leaders. On Friday, he discussed with The Washington Post the outlook for the economy, budget battles on Capitol Hill and Fed policy. Below is an edited transcript:

WP: How much momentum do you see in the economy, and are you buying into some of the sunnier forecasts that are out there for 2011?

Fisher: The one thing that's changed is that the risk of a double-dip recession and the likelihood of deflation have disappeared into the rearview mirror. We may not be at full cruising speed, but at least we're moving forward. As my chairman, Herb Kelleher [co-founder of Southwest Airlines and chairman of the Dallas Fed board of directors] says, we're moving at three knots, not 30.

WP: What are the chances that we actually get some robust growth?

Fisher: The most likely outcome is growth in the 3 to 4 percent range, gradually accelerating. It's a much less-likely outcome that we're going to see enough robust growth to generate the kind of jobs everybody would like to see. Therefore, we need another push, and the push is going to need to come from the fiscal authorities.

Whether you think we have done too much or the right amount, I think it's hard to dispute the fact that the Fed has reliquified the economy. I don't think you can criticize the Fed for not having done their job.

As you know, I was not in favor of the $600 billion [program of buying Treasury bonds that the Fed enacted last November in a bid to strengthen growth]. I didn't think it was necessary because I thought we had already topped off the tanks. But I lost that argument.

WP: You've been vocal about fiscal authorities needing to rein in deficits. How do you reconcile that with the need for the fiscal authorities to help keep the economy on track?

Fisher: I'm going to use a very crude analogy. Previous congresses have been Lindsay Lohan congresses. First, they were overindulged in their power. Secondly, they suffered from addictive behavior - the addiction to debt and spending. And third, they've been shoplifting our children's future. It's a sad pathology. What I'm encouraged by is suddenly people are talking about it and attempting to do something about it. Whatever side of the aisle they're on, they should be applauded.

The trick now is to deal with our long-term solvency issues, and do so in ways that create incentives for companies to invest in American projects and hire American workers when there are good opportunities elsewhere. You have to provide those incentives while making clear that you're going to keep this country solvent and deal with long-term deficit buildups, so you're not trying to build a business under enormous long-term uncertainty.

WP: How do you think of the possibility of a government shutdown or problems rolling over the debt ceiling? Are those things that pose a risk to the economy in the near term?

Fisher: Now you're getting into the political-wrestling arena, and that's not what we're very good at at the central bank. That's negotiating tactics. Personally, I cannot imagine a scenario in which the United States defaults on its obligations. I don't believe that's going to happen. In terms of how you get people to sit down at the table, whether that's a good tactic or a bad tactic, that's up to the politicians to decide.

WP: Do you think the steep rise in energy and food prices in the last few months is in part the fault of the Federal Reserve?

Fisher: I've heard the argument. I think you can probably attribute some speculative activity to the fact that people are looking for returns. It's almost a tautology, when rates are very low, one of the consequences are that people reach for returns.

At the same time, Chairman [Ben S.] Bernanke is correct, that there is an enormous amount of demand that's come from new sources. China and India are enormous countries. There are new mouths to feed, they need to clothe their people, build their infrastructure.

You have to realize, this is good news. The Cold War's over. Mao's dead. We're not fighting these people anymore. We've gone from mutually assured destruction to mutually assured competition. We're going to have to figure out how to supply these new sources of demand. But the largest part of this is supply and demand. I do not buy this Chinese argument that their problems come about because of U.S. monetary policy.

But I think you have to be careful that this doesn't get out of control. I have a scar on my back. I served in the Carter administration. I haven't forgotten how quickly high inflation took grip and how things spun out of control. I remember the painful cure that had to be imposed. That's one of the reasons I am probably more of a hawk on monetary policy [meaning more worried about inflation than growth] in the nomenclature that you all like to use. Because I've lived through it before, and I saw what pain it brought.

WP: You were a skeptic of the $600 billion in new asset purchases back in the fall. Why aren't you dissenting from the policy now as it is being carried out?

Fisher: I think it's a fait accompli. It was agreed upon by the committee. I don't think dissenting would be an effective way to express myself currently. I fully expect it to be completed, and I've made very clear that I won't support another round. I don't think it's necessary, unless there's some shock to the system that I cannot foresee.

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