Fed’s Fisher Says Economic Uncertainty Hinders Expansion

NEW YORK (Oct 3)  Federal Reserve Bank of Dallas President Richard Fisher, who has opposed additional stimulus, said years of high “economic policy uncertainty” in the U.S. have been a “significant hindrance” to the economic expansion.

The Fed’s surprising investors by delaying the first taper of bond buying amid an improved labor market “may have increased uncertainty about the future path of monetary policy,” Fisher, who does not vote on monetary policy this year, said today in a speech prepared for delivery in Dallas.

“That was one argument raised against the decision not to taper,” Fisher said of the policy maker meeting last month. “I know, because I made the argument, and I was not alone.”

Policy makers are debating how to curb record stimulus amid a deadlock over the federal government’s budget and a lack of agreement on raising the debt ceiling to avoid default. The Federal Open Market Committee (FDTR) at its next gathering on Oct. 29-30 will weigh the impact from the government’s partial shutdown as they debate tapering the $85 billion pace of monthly bond buying to boost the labor market.

The U.S. government defaulting on its debt later this month would be an “unthinkable” event that also would undermine economic growth and cause faith in U.S. debt to “be a mirage rather than accepted fact,” Fisher said.

Business leaders “have regularly complained of the fog of uncertainty emanating from Washington” since the recovery began in 2009, Fisher said.

Planning Impossible

“They have consistently cited fiscal and regulatory uncertainty as major impediments to capital investment and expanding payrolls,” Fisher said, citing President Barack Obama’s Affordable Care Act, which debuted Oct. 1. “They’ve complained of not knowing what their all-in labor and other costs will be and of how that lack of knowledge has made long-term employment planning nearly impossible.”

The Fed has pledged for more than a year to press on with asset purchases until achieving sustainable gains in the labor market. The central bank announced a third round of quantitative easing in September 2012 to reduce longer-term interest rates, stoke economic growth and combat unemployment.

The first government shutdown since 1996 began a third day today as face-to-face talks between Obama and congressional leaders failed to break the budget logjam. Treasury Secretary Jacob J. Lew said the U.S. has begun final extraordinary measures to avoid breaching its debt limit that will be exhausted no later than Oct. 17.

Partial Shutdown

A week-long partial shutdown would probably shave 0.1 percentage point from economic growth, according to 40 economists in a Bloomberg survey this week. The world’s largest economy expanded at a 2.5 percent rate in the second quarter.

Boston Fed President Eric Rosengren, a consistent backer of record stimulus who votes on policy this year, said yesterday the Fed refrained from tapering its bond purchases at the last meeting on Sept. 17-18 because growth was lower than forecast and fiscal policy posed a risk to the outlook.

“Had U.S. fiscal matters not been so problematic, and incoming data on real GDP and employment stronger, it may well have been appropriate to take some action in September,” Rosengren said in a speech in Burlington, Vermont, referring to gross domestic product. “Unfortunately, those were not the facts we faced” at the policy meeting last month.

Fisher, 64, has been Dallas Fed chief since 2005. Fisher previously was an assistant to Treasury Secretary W. Michael Blumenthal in the Carter administration and deputy U.S. trade representative in the Clinton administration with the rank of ambassador from 1997 to 2001. His district includes Texas, northern Louisiana and southern New Mexico.