Dallas Federal Reserve Bank President Richard Fisher Friday said he urged Fed policymakers to continue dialing back its monthly bond purchases at the same pace as they have done at each of its last two policy meetings.
Speaking to reporters after a speech at the University of Texas, Fisher also said the policymaking Federal Open Market Committee is likely to move away from hard numbers in its forward guidance on interest rates towards a more qualitative approach.
Asked if the $10 billion per meeting reductions seen so far will be remain in place for the rest of the year, Fisher – a voter on the FOMC this year – replied: “I think it depends on economic conditions, but it’s what I’m going to advocate.”
The FOMC is currently buying $65 billion a month in assets, but Fisher argued that the Fed does not need to continue to add to the monetary base. “I’m going to continue to advocate moving in the direction of ending, as soon as practicable, the large scale asset purchases,” he said.
Given that policy decisions are now going his way, Fisher stressed the importance of unanimity within the FOMC.
The fact that the vote to taper the asset purchases by a further $10 billion at the January FOMC meeting was unanimous is “a good sign,” Fisher said. “We had total unanimity at the table … and I think that’s what’s important.”
And on a day when the Fed released the transcript from its 2008 policy meetings, the year when the meltdown in the financial markets occurred, Fisher said one lesson learned six years on is that “we all listen to each other much more carefully now.”
The minutes of the FOMC’s January meeting showed broad agreement among participants that the Fed likely will need to address the use of thresholds in its forward guidance policy “relatively soon.”
Fisher said the central bank needs to signal to the financial markets with more clarity and “I think it’s hard to do it in quantitative terms.”
While there are pros and cons on both sides, “My guess is that we are going to be more qualitatively oriented” in the forward guidance, Fisher said, although the decision is not set in stone. “We are in need of discussion and we are discussing this.
“We need to consider a way to articulate that section of what we provide in terms of forward guidance a little bit better, or try to anyway,” he added.
Fisher said the Fed could boost its communications by having the Fed Chair hold a news conference after every FOMC meeting, as opposed to just four times a year as is currently the case. “That’s another way to amplify it (the FOMC statement),” he said.
The FOMC minutes are another way to qualitatively communicate the thinking of monetary policymakers, he continued,
He noted that the “crude, blunt instrument” that is the FOMC’s 6.5% unemployment threshold is fast approaching, although uncertainty remains regarding how much of the drop in the jobless rate is structural or cyclical.
“We want to make sure we don’t overstay our welcome with accommodation … if there’s a skills mismatch, monetary policy cannot address that,” Fisher said.
Monetary policy is necessary to “propel” job creation, however, “there is plenty of money available for businesses to work with,” he said.
Fisher described inflation right now as “well under control.” He warned that allowing inflation to rise above 2.5% to spur spending would be “a dangerous course of action,” and “not a smart thing to do.”