Federal Reserve Bank of Dallas President Richard Fisher, one of the most vocal critics of bond purchases by the central bank, said record Fed stimulus can’t revive U.S. manufacturers from a two-year slump caused by ambiguity in regulation and fiscal policy.
“They have been given abundant, super-cheap monetary fuel needed to stoke up their production engines and expand their businesses,” Fisher, who doesn’t vote on monetary policy this year, said today in a speech in Orlando, Florida. “What is holding us back” is “fiscal and regulatory policy of the gang that can’t shoot straight in Washington.”
Minutes of the Federal Open Market Committee’s July 30-31 meeting released yesterday show Fed officials are comfortable with Chairman Ben S. Bernanke’s plan to start reducing bond buying later this year if the economy improves. Treasury yields reached two-year highs today as reports showed a strengthening job market and a gain in economic indicators, suggesting the expansion may be strong enough for the Fed to cut stimulus.
Fisher said in the text of prepared remarks that “there are many risks in the policy that the Fed has been pursuing,” without elaborating. He said Aug. 16 the central bank should taper $85 billion in monthly bond purchases at its Sept. 17-18 meeting if economic reports remain favorable.
The FOMC will probably vote next month to scale back the unprecedented stimulus program, according to 65 percent of economists surveyed by Bloomberg Aug. 9-13. The first step may be to reduce monthly purchases by $10 billion to a $75 billion pace, according to the median estimate in the survey of 48 economists. They said buying will probably end by mid-2014.
Fisher spoke today primarily about U.S. manufacturing.
“Every manufacturer of goods in America has been given a great gift by your central bank, the lowest cost of money in 237 years, an extension of the roaring bond market rally that has now run 32 years and a broad stock market rally that began in March of 2009,” Fisher said to a conference hosted by Wal- Mart Stores Inc. and the National Retail Federation.
“After recovering most of the losses from the Great Recession, manufacturing growth has, on net, decelerated in the last two years,” Fisher said. “Ask any manufacturer what holds him or her back and they will tell you that they can’t operate in a fog of total uncertainty concerning how they will be taxed or how government spending will impact them or their customers directly.”
Manufacturing has shown recent signs of picking up and expanded in July at the fastest pace in more than two years, the Institute for Supply Management’s factory index showed Aug. 1.
Fisher, 64, a former money manager and deputy U.S. trade representative, has been president of the Dallas Fed since 2005. In 2011, he dissented twice against efforts to push down long-term borrowing costs and keep the benchmark interest rate near zero for a prolonged period. He voted in favor of tighter policy five times in 2008. His district includes Texas, northern Louisiana and southern New Mexico.
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