Fed’s Fisher: To Ease or Not to Ease

Despite recent speculation in the press and among market pundits, officials within the Federal Reserve are still debating whether they should engage in further quantitative easing, Dallas Federal Reserve President Richard Fisher said Thursday.

“There are limits to what monetary policy can accomplish if fiscal policy blocks the road,” Fisher argued.

In remarks prepared for the Economic Club of Minnesota, Fisher said he was afraid that “despite recent speculation…[the Fed] did little [in the last] meeting to settle the debate as to whether the Committee might actually engage in further monetary accommodation, or what has become known in the parlance of Wall Street as “QE2,” a second round of quantitative easing”

Fisher, who will be a voter on the FOMC next year also said that further monetary accommodation “would be marked by an expansion of our balance sheet beyond its current footings of $2.3 trillion through the purchase of additional Treasuries or other securities.”

“To be sure” said Fisher,” some in the marketplace―including those with the most to gain financially―read the tea leaves of the statement as indicating a bias toward further asset purchases, executed either in small increments or in a “shock-and-awe” format entailing large buy-ins, leaving open only the question of when.”

“Since the FOMC meeting, a handful of my colleagues have fanned further speculation about QE2 by signaling their personal positions on the matter quite openly in recent speeches and interviews in the major newspapers. Hence the headline in yesterday’s Wall Street Journal, “Central Banks Open Spigot,” a declaration that surely gave the ghosts of central bankers past the shivers and sent a tingle down the spine of gold bugs from Bemidji to Beijing.
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There is a great deal of legitimate debate still to take place within the FOMC on the subject of quantitative easing and the pros and cons and costs and benefits of further monetary accommodation. Whatever we might do, if anything, must be consistent with long-term price stability and not add to the nightmare of confusing signals already being sent to job creators.

What will we likely decide at the next FOMC meeting? ….. “You’ll find out soon enough.”

In other words, Fisher’s suggestion is that the debate on QE2 isn’t over.