Dallas Fed's Fisher today gave a brilliant speech. Some exceprts:
Speaking of what the Fed has done:
In my darkest moments, I have begun to wonder if the monetary accommodation we have already engineered might even be working in the wrong places.
Turning to final demand, the weak pace of recovery in U.S. export markets and political and budget realities mean that little near-term growth impetus can be expected from net exports and government purchases.On further accomodation:
The problem is that, presently, the efficacy of further accommodation using nonconventional policies is not all that clear.
A great many baby boomers or older cohorts who played by the rules, saved their money and migrated over time, as prudent investment counselors advise, to short- to intermediate-dated, fixed-income instruments are earning extremely low nominal and real returns on their savings. Further reductions in rates earned on savings will hardly endear the Fed to this portion of the population. Moreover, driving down bond yields might force increased pension contributions from corporations and state and local governments, decreasing the deployment of monies toward job maintenance in the public sector. Debasing those savings with even a little more inflation than what is above minimal levels acceptable to the FOMC is also unlikely to endear the Fed to these citizens.
“Central bankers elsewhere are strongly indicating that they are preparing to open credit spigots to reflate their economies at a time when fiscal policy is stalled or contracting.”Conclusion:
My reaction to reading that article was that it raises the specter of competitive quantitative easing. Such a race would be something of a one-off from competitive devaluation of currencies, a beggar-thy-neighbor phenomenon that always ends in tears.
Before concluding, I want to return to the TIC data I mentioned earlier. Yesterday, I asked a trader of sovereign debt how he interpreted the recent numbers. His answer: “We are still the best-looking horse in the glue factory.” It was a witty reply. But it was disturbing. This is America. Whether we are Ranger or Yankee fans, Texans or New Yorkers, we have been blessed to live in the most prosperous nation on earth. We cannot now accept simply being the “least worst” among major economies. We must be better than the rest.
This cannot be accomplished by the FOMC alone. Whatever we do with monetary policy will be of limited utility, if not counterproductive, unless it is complemented by sensible fiscal policy that restores confidence and puts the American people back to work. We are not glue-factory horses. We are thoroughbreds. It’s time to put us back on track.