The Federal Reserve’s most outspoken stimulus skeptic gave Fed Chairwoman Janet Yellen high marks Monday for last week’s decision to end the central bank’s unprecedented two year-long bond-buying program.
Yellen “has proven herself in her role at the helm … to be neither dove nor hawk. Rather, she is impressively balanced,” said Federal Reserve Bank of Dallas President Richard Fisher in a speech in New York City on Monday.
Fisher voted with Yellen on Wednesday to end the monthly bond purchases and to tie plans to raise short-term interest rates to incoming economic data. That decision was widely interpreted as a slightly more aggressive move toward tighter money than had been expected.
Fisher, a frequent dissenter from the Fed’s easy money policies, had voted against the Fed’s September policy decision on the grounds that the central bank should raise rates from zero sooner rather than later.
But Fisher said Wednesday’s move won his support because it both ended the quantitative easing program and included language that suggested that rate increases could come sooner rather than later if the economy continues improving. That language “neutered” another section of the statement that promised low rates for a “considerable time,” Fisher said.
Nevertheless, the Texan, who is due to rotate out of the Fed’s monetary policy committee at the end of the year and to retire next year, also said that the time is right to move toward raising rates from zero from the first time since 2008.
“I liken monetary policy to duck hunting. If you want to bag a mallard, you don’t aim where the bird is at present, you aim ahead of its flight pattern,” Fisher said. “To me, the flight pattern of the economy is clearly toward increasing employment and inflation that is approaching our 2-percent target.”
Fisher, a Democrat, has often spoken about his healthy relationship with Yellen. But he has been in the minority among Fed members in criticizing the unconventional policies pursued by Yellen and predecessor Ben Bernanke in the wake the recession.
He reasserted his opposition to the latest bond-buying program Monday, saying, “I would rather we had never had QE3 in the first place.”
And he warned that, even with the bond purchases ending, the program still risks creating trouble because the Fed’s current $4.5 trillion balance sheet provides “inflationary tinder.”
“Only when we have normalized monetary policy … will we know if QE3 rests in peace or comes back to haunt us,” Fisher warned.
