CNBC discusses the views of Dallas Fed President Fisher:
Signs are rife that the U.S. economic recovery is slowing, with retail and housing sales down, manufacturing slowing, and unemployment at a stubbornly high 9.5 percent. Some Fed officials, including Fed Chairman Ben Bernanke, have recently raised the possibility that the Fed may need to ease monetary policy further if the economy worsens.
Fisher said such a move would be ineffective, and could even make matters worse.
Businesses are distressed and dispirited by uncertainty over upcoming rule changes and are unable to conduct long-term planning, he said.
“They are calling time-outs and heading to the sidelines while they wait for the referees to settle on the rules of the game,” Fisher said. “If this is so, no amount of further monetary policy accommodation can offset the retarding effect of heightened uncertainty over the fiscal and regulatory direction of the country.”
I don’t get this at all. There was lots of governmental activism during the Lyndon Johnson years, and yet rapid NGDP growth led to rapid RGDP growth. During FDR’s first term there was far more activism and far more uncertainty than right now, but fast NGDP growth led to fast RGDP growth. I’m no fan of Obama’s policies; I think they have modestly increased the structural rate of unemployment. But monetary stimulus remains the key to recovery. It will also eventually lead to fewer policies that reduce aggregate supply, such as extended UI benefits.
Fisher sought to assure his audience that the Fed will not allow itself to be pushed into printing money to resolve the deficit and signaled he would would oppose any further easing on that basis.
Of course he has things exactly backward. Many of the spending programs that he doesn’t like were undertaken precisely because monetary policy reduced NGDP nearly 8% below trend between mid-2008 and mid-2009. And the current recovery is anemic, with NGDP growing at less than 40% of the rate it grew during the 1983-84 recovery.
Calling price stability the Fed’s “ultimate goal,” he said the U.S. central bank will not tolerate either inflation or deflation.
“The Federal Reserve is absolutely committed to its goal of achieving price stability,” he said. “This entails keeping inflation extremely low and stable.”
I’ve already said enough about “opportunistic disinflation.”