The U.S. Federal Reserve is committed to keeping the price of money low until the economic recovery strengthens, but should not do more to boost growth without fiscal and regulatory policies that support businesses, a top Fed official said on Wednesday.
The Fed's recent decision to keep its $2 trillion balance sheet steady was an effort to put a halt to any passive tightening that could impede recovery, Dallas Federal Reserve President Richard Fisher told a group of business leaders.
But he said he would be reluctant to expand the Fed's balance sheet further, because to do so would at best be ineffective and at worst fuel the fires of future inflation.
I believe that monetary accommodation alone cannot buy happiness, Fisher said in the text of remarks to the Greater Houston Partnership.
Sounding a theme he has expanded on before, Fisher said businesses are holding back on investments because of uncertainty over the cost of future regulation, such as that mandated by U.S. healthcare reform, and over the country's fiscal direction and future taxes.
For me, the ball is in the fiscal court for now, he said. Any further action by the Fed must be subject to the kind of rigorous cost-benefit analysis that Ben Bernanke cited in Jackson Hole. One of the variables that must be taken into account is whether fiscal and regulatory policies are conducive to growth.
Fisher, who rotates into a voting spot on the Fed's policy-setting Federal Open Market Committee next year, did not say whether the fiscal policies he views as desirable included further fiscal stimulus, as some prominent policy-makers have advocated.
The Fed's programs to alleviate a deepening recession and credit crisis in 2008 by cutting interest rates to near zero and buying mortgage-backed and other securities were complemented by huge amounts of government stimulus whose effects are now beginning to wane.
In the past, Fisher has spoken extensively about the threat of the U.S. fiscal deficit, a point that was absent from Wednesday's speech.
Fiscal and regulatory initiatives need to be aligned with the needs of businesses, he said in the speech. And while the Fed will use all tools in its power to boost confidence in the economy, it is important to recognize that we cannot do it alone, he said.
The best way to leverage the influence of monetary policy is to have fiscal and regulatory policy that complements, rather than counters, the impact we might have in helping the economy get back on the course of sustained, noninflationary growth.
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(Reporting by Ann Saphir, Editing by Chizu Nomiyama)