Despite having some “green shoots” beginning to sprout and set the stage for a recovery, the economy will not recover in a meaningful way before the end of this year, Richard Fisher, Dallas Fed President told the Washington Association of Money Managers on Thursday. Mr. Fisher also said that there is evidence that action taken by the central bank have succeeded in pulling the financial markets and the economy from the edge of the abyss. Here are a few excerpts from Fisher’s speech:
Dallas Fed: [T]he knock-on effect of the Fed’s direct efforts does seem to have reignited animal spirits in markets that had been frozen. The commercial paper market has been revived. ….Issuance of corporate bonds has become robust. The premium over Treasuries….has fallen by more than 35 percent since peaking last December. The same can be said of higher risk bonds as well as jumbo mortgages—all markets considered to be at the far end of the risk spectrum….These are encouraging signs. But, to be sure, we are not out of the woods. We have miles to go before we sleep.
Compared with the fourth quarter of last year, first quarter results for the nation’s largest banks are encouraging, yet obvious challenges remain. Confidence among business women and men—the creators of lasting, productive jobs and prosperity—has shown signs of revival but remains elusive. The markets we sell into abroad…remain strikingly weak, while others such as China are perhaps more robust but are insufficiently sized to fill the hole left by consumers at home and in our larger export markets.
Under these conditions, I have been forecasting a slow recovery. Not a V-shaped snapback—nor even a U-shaped one—but a very slow slog as we find a more sensible and sustainable mix between consumption, savings and investment.
Fishers also emphasized that the Fed was well aware of its aggressive expansion of the central bank’s balance.
“I can…tell you that nobody I know on the committee wants to maintain our current posture for any longer and to any greater degree than is minimally necessary to restore the efficacy of the credit markets and buttress economic recovery without inflationary consequences,” he said. “Indeed, as I speak, we are studying ways to unwind our balance sheet in a timely way,” Fisher added.
Fisher, who is not a voting member of the Fed’s policy-setting committee this year, also said that near-term outlook for inflation remains “meek” amid a tepid recovery.