Thursday, September 29, 2011

Fed's Fisher: Operation Twist Likely Ineffective, May Well Work Against Job Creation

The Dallas' Fed's President Fisher said in a speech today in Dallas that he voted againt  operation Twist “a strategic decision where I did not feel the benefits outweighed what I perceived to be the costs,” in particular, being conterproductve to job creation. Well, this would be a major effect indeed.

Presidents Charles Plosser of Philadelphia and Narayana Kocherlakota from Minneapolis also dissented

“My fundamental concern is about the efficacy of these initiatives,” “nothing more than pushing on a string”

Atlanta's Fed's President Dennis Lockhart said Operation Twist will probably "give no more than a slight boost to the U.S. economy". “The transmission mechanism for monetary policy remains somewhat impaired, and for this reason I am not expecting large gains from the Fed’s most recent action,” “It’s realistic to expect modest positive impact from this program.”
Fisher also commented about the U.S. economy  “it’s weak. Businesses are on pause. Customers and consumers are on pause. Uncertainty about the future is rampant and uncertainty undermines confidence.”
“There’s lots of liquidity,”  “You cannot rely on the Federal Reserve to do it all.”

Fisher also discussed conversations with business people who told him that a plan like Operation Twist would signal the FOMC’s concerns about a worsening economy and give people incentives to hoard savings, and that would complicate the Fed’s future decisions, as well as suppress bank earnings.

“There is a significant risk that the policies recently undertaken by the FOMC are likely to prove ineffective and might well work against job creation,”

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