Fed dissenter: Economy's biggest problem is distrust of Washington

The Federal Reserve should not take steps to combat economic problems created by Washington's penchant for theatrics and "fiscal misfeasance," a Federal Reserve Governor said Wednesday.

Richard Fisher, the president of the Federal Reserve Bank of Dallas, said that businesses have ample access to credit from banks, but that a growing distrust of the nation's political institutions is keeping them on the sidelines.

"They simply cannot budget or manage for the uncertainty of fiscal and regulatory policy," he said in a speech. "There is palpable angst surrounding the cost of doing business. According to my business contacts, the opera buffa of the debt-ceiling negotiations compounded this uncertainty, leaving business decisionmakers frozen in their tracks."

Fisher took policymakers to task during a speech in which he explained his reason for opposing the recent decision by the Fed to make explicit that it would be keeping interest rates near zero for at least two more years. He was one of three members of the policy-setting Federal Open Market Committee that dissented from the panel's recent statement — the highest level of dissent from the group in nearly 20 years.

While known as an inflation "hawk" among Fed-watchers, Fisher insisted that it was not concern about potentially growing prices that drove his opposition. Rather, it was the fact that the Fed was trying to fix problems that it did not create and could not control.

"I do not believe it wise to ... signal further accommodation, when the cheap and abundant liquidity we have made available is presently lying fallow, and when the velocity of money remains so subdued as to be practically comatose," he said, adding that the Fed signaling historically low rates through mid-2013 basically admits "we are on hold until then."

The central bank, via low interest rates, has produced ample credit in the market, creating a banking system "awash with liquidity." Now, it was up to politicians to convince businesses to start investing and growing, Fisher argued.

And the drama of the eleventh-hour debt limit fight did not help matters.

"Unless you were on another planet, no consumer with access to a television, radio or the Internet could have escaped hearing their president, senators and their congressperson telling them the sky was falling," he said. "It does not take much imagination to envision consumers deciding to forego or delay some discretionary expenditure they had planned."

While Congress has vowed to come up with at least $1.2 trillion in cuts via the newly created supercommittee, waiting until mid-November for that group of lawmakers to potentially craft a deal could continue to weigh down the economic recovery.

"It will be devilishly difficult for businesses to commit to adding significantly to their head count or to meaningful capital expansion in the United States until clarity is achieved on the particulars of how Congress will bend the curve of the deficit and debt expansion," he said.

He added that the 12 lawmakers on the supercommittee have an "awesome task," but that they need to get to work on it posthaste.

"Monetary policy cannot substitute for what you must get on with doing," he said. "Get on with your job."

---