A Skeptical Voice At The Fed

The Federal Reserve is a collegial institution. While Chairman Ben Bernanke is frequently in the spotlight, decisions are reached by consensus and approved by votes. The Federal Open Market Committee, which controls the key policy tool of quantitative easing, has a rotating membership drawn from the Fed’s Board of Governors and the presidents of its member banks.

Richard Fisher, president of the Federal Reserve Bank of Dallas, is concerned about the effectiveness of the latest round of monetary accommodation known as QE3. He does not sit on the FOMC this year, and thus did not participate in the vote authorizing it. He acknowledges the Fed is under great pressure to act because of bad unemployment numbers, but believes that quantitative easing has reached the point of greatly diminished returns.

In an interview conducted by Bloomberg, Fisher echoed external critics and sounded the alarm on inflation:

I do not see an overall argument for letting inflation rise to levels where we might scare the market. We have seen a sharp rise in inflation expectations. If you let this get out of hand, then I think we will have a market reaction.

Fisher believes over-regulation and the festering sore of the federal budget, especially the uncertainty about tax increases, are the culprits behind the lingering malaise. The Fed’s policy tools cannot overcome these debilitating influences, which must be addressed by the president and Congress. Speaking with CNN Money (see video), Fisher asserts that businesses are ready to hire in a big way once the federal government gets its own house in order.