Dallas Reserve Bank CEO: Business needs regulatory certainty to expand

Fri Oct 01, 2010 11:45 AM - Fri Oct 01, 2010 02:00 PM
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Richard Fisher
Richard Fisher, president and chief executive officer of the Federal Reserve Bank of Dallas. Photo: D.Roels

By Tanya Colledge
Venue: Renaissance Vancouver Hotel Harbourside

Responding to recent suggestions from federal officials on the U.S. central bank’s policy committee, Richard Fisher, president and chief executive officer of the Federal Reserve Bank of Dallas, chose The Vancouver Board of Trade for his first keynote presentation in Canada on what’s next for the global economy.

“While the risks of a double-dip recession are small, the pace of recovery in the U.S. is sub-par,” said Fisher as head of the second largest federal reserve bank in the U.S., and a member of the Federal Open Market Committee. He explained that the $125 billion burst, seen over a four-quarter period from 2009 to 2010, accounted for an approximate 60 per cent of real GDP growth and was positive, but he is doubtful it will make much of an impact in the coming quarters.

“While none of us are satisfied with the current pace of economic expansion and job creation, presently it is not clear that conditions warrant further crisis-like deployment of the fed’s arsenal,” said Fisher commenting on the recent suggestions that the “fed” should embark on quantitative easing—a plan that would inject money into the financial system by buying up additional securities and treasuries.

“The key point is that the pace of economic activity is insufficient to create the number of jobs that the U.S. needs to bring down unemployment, which is very high—too high. If we cannot generate enough jobs to absorb the labour force, then we cannot expect the final demand needed to achieve more rapid economic growth,” he said, suggesting a better strategy would be lowering uncertainty about future tax and regulatory policy, and offering more monetary accommodation.

“The vexing question,” asked Fisher, “is why isn’t this liquidity being utilized to hire new workers and to reduce our too high level of unemployment?” According to Fisher, with the current hesitation surrounding new regulations such as health care and possible tax increases, large-to-medium-sized businesses are resisting U.S. expansions, regardless of the abundance of capital available. Fisher suggests providing businesses with more security to reduce the interest for large companies to invest overseas, will stimulate the growth of jobs and the dollar in the U.S.

Predicting a modest end-of-year growth with a tail risk of inflation, Fisher expressed his concerns of further expanding the fed’s balance sheets. Until the political authorities better align fiscal and regulatory initiatives with the needs of job creators, Fisher explained that further quantitative easing would only ignite inflation down the road. 

“What I envision from the current vantage point is an anemic recovery—but not one that slips into reverse gear,” said Fisher, who in closing, proposed that “the key is to first remove or reduce the level of regulatory uncertainty that acts as an impediment to businesses responding to an increase in final demand.”