Dallas Federal Reserve Bank President Richard Fisher Tuesday night said additional asset purchases by the central bank are unlikely to boost job creation, arguing the Fed has done as much as it can but businesses remain reluctant to invest due to U.S. fiscal and regulatory policy.
“One is hard pressed to argue that there is much efficacy derived from additional expansion of the Fed’s balance sheet. This is why I’ve been such a strong proponent of dialing back our large-scale asset purchases,” Fisher said in remarks prepared for delivery to financial executives in Dallas, Texas.
“We at the Fed are providing more than enough monetary accommodation,” said Fisher, who is a voter on the policymaking Federal Open Market Committee this year. “Bear in mind that we at the Fed only control the monetary base (cash plus bank reserves), not the velocity with which money is used,” he added.
After reducing the pace of its bond buying at its last two meetings, the FOMC is now purchasing $65 billion a month in Treasury securities and mortgage-backed bonds. Fisher, however, believes there is already plenty of money available for businesses to work with.
He pointed to the store of “vast” reserves that currently lie “fallow” in banks vaults, noting that they have grown from a pre-crisis level of $43 billion to $2.5 trillion.
“It is my firm belief that the fault in our economy lies not in monetary policy but in a feckless federal government that simply cannot get its fiscal and regulatory policy geared so as to encourage business to take the copious amount of money we at the Fed have created and put it to work creating jobs and growing our economy,” Fisher said.
He described U.S. fiscal policy as “not only ‘not an ally of U.S. growth,’ it is its enemy.”
Noting that middle income workers in the United States are being “eviscerated,” Fisher agreed that monetary policy “is necessary” to fuel job creation.
However, “if the fiscal and regulatory authorities that you elect and put into office to craft taxes, spending and regulations do not focus their efforts on providing incentives for businesses to expand job-creating capital investment rather than bicker with each other for partisan purposes, our economy will continue to fall short and the middle-income worker will continue being victimized, no matter how much money the Fed prints,” he warned.
So the solution is not additional easing by the Fed, and given the fact that the amount of money lying idle in the banking system is 60 times greater now than it was at year-end 2007, “one is hard pressed to argue that there is insufficient money available for businesses to put people back to work,” Fisher said.