The Federal Reserve has no business easing monetary policy further when the real problem facing the economy is fiscal mismanagement in Washington, a top Fed official said on Wednesday.
Speaking for the first time since his dissent last week on the Fed's promise to freeze interest rates near zero for the next two years, Dallas Fed President Richard Fisher - known as an inflation hawk - said his main worry was not the possibility that easy policy could send prices spiraling higher.
Rather, he said, his worry is that the liquidity the Fed has already created is sitting on the sidelines as businesses and households delay spending amid uncertainty over tax and regulatory policy.
The Fed has kept interest rates near zero since December 2008 and has bought $2.3 trillion in long-term securities to support the economy, and yet job creation remains weak and the recovery meager, Fisher said.
The Fed last week extended its already super-easy monetary policy by promising to keep rates near zero through mid-2013, and said it was weighing other options to support a weak recovery.
Three Fed officials - Fisher, Minneapolis Fed President Narayana Kocherlakota, and Philadelphia Fed President Charles Plosser -- cast their vote against the decision, the first triple dissent at the Fed since 1992.
I believe what is restraining our economy is not monetary policy but fiscal misfeasance in Washington, Fisher said in remarks prepared for delivery to a community forum in Midland, Texas.
U.S. fiscal authorities must address the U.S. debt and deficit problems or risk encouraging businesses to move business overseas in search of regimes that provide more certainty.
Businesses simply cannot budget or manage for the uncertainty of fiscal and regulatory policy, he said. Monetary policy cannot substitute for what you must get on with doing, he added, addressing lawmakers directly. Get on with your job.
Fisher's sharp words come just weeks after disagreements over deficit-cutting between Congress and the Administration brought the U.S. to the brink of a first-time-ever debt default.
Ultimately they struck agreement to reduce deficits, but the plan does little to give businesses the certainty they need to resume hiring, Fisher said.
This week two U.S. Republican candidates for president attacked Chairman Ben Bernanke and the Fed's policies for their role in harming the economy. Without referring to specific people, Fisher made it clear he would not take such criticism lying down.
Pointing fingers at the Fed only diminishes credibility, he said. The ugly truth is that the problem lies not with monetary policy but in the need to construct a modern, appropriate set of fiscal and regulatory levers and pulleys to better incentivize the private sector to channel money into productive use in expanding our economy and enriching our people.
It's a refrain that Fisher has repeated many times over the last year and a half, and that sets him apart from his fellow dissenting colleagues, who cited worries over inflation and the strength of the economy for their dissents.
Inflation as measured by the Fed's preferred core PCE price index rose to 1.3 percent in the 12 months ended in June, from a low last December of 0.9 percent. Unemployment fell to 9.1 percent in July, down from just over 10 percent at its peak last year.
(Reporting by Ann Saphir)