Fed's Fisher Blasts "Flaccid" Monetary Policy, Says More CapEx Needed

Tyler Durden's picture

We warned here (and here most recently), the most insidious way in which the Fed's ZIRP policy is now bleeding not only the middle class dry, but is forcing companies to reallocate cash in ways that benefit corporate shareholders at the present, at the expense of investing prudently for growth 2 or 3 years down the road. It seems the message is being heard loud and very clear among 'some' of the FOMC members; most notably Richard Fisher:

"Without fiscal policy that incentivizes rather than discourages U.S. capex (capital expenditure), this accommodative monetary policy aimed at reducing unemployment (especially structural unemployment) or improving the quality of jobs is rendered flaccid and less than optimally effective... I would feel more comfortable were we to remove ourselves as soon as possible from interfering with the normal price-setting functioning of financial markets."

Perhaps Yellen (and others) will listen this time?


Excerpted from Richard Fisher's speech on Monetary Policy:


In my view, the Federal Reserve has supplied more than sufficient liquidity to fuel economic recovery above and beyond a reduction of unemployment from its current level of 7 percent. As I just said, money is cheap and liquidity is abundant. Indeed, it is coursing over the gunwales of the ship of our economy, placing us at risk of becoming submerged in financial shenanigans rather than in conducting business based on fundamentals.

Monetary Policy Rendered Flaccid

To be sure, the job creators in our economy—private companies—have used this period of accommodative monetary policy to clean up the liability side of their balance sheets and fine-tune their bottom lines by buying shares and increasing dividends. They have also continued achieving productivity enhancement and relentless reduction in SG&A (selling, general and administrative expenses). Running tight ships, they are now poised to hire as they become more confident about nonmonetary matters that remain unresolved.

I used to say that the United States was the best-looking horse in the global glue factory. Now, I firmly believe we are the most fit stallion or filly on the global racetrack: Our companies are the most financially prepared and most productively operated they have been at any time during the nearly four decades since I graduated from business school. What is holding them back is not the cost or the availability of credit and finance. What is holding them back is fiscal and regulatory policy that is, at best, uncertain, and at worst, counterproductive.

Against that background, I believe that the current program of purchasing $85 billion per month in U.S. Treasuries and mortgage-backed securities comes at a cost that far exceeds its purported benefits. Presently, there is no private or public company that I know of, including many CCC-rated credits, that does not now have access to sufficient, cheap capital. There is no private or public company I know of that considers monetary policy to be deficient. Instead, to a company, every CEO I talk to feels that uncertainty derived from fiscal policy and regulatory interference is the key government-induced deterrent to more robust economic growth and profitability.

The FOMC has helped enable a sharp turn in the housing market and roaring stock and bond markets. I would argue that the former benefited the middle-income quartiles, while the latter has primarily benefited the rich and the quick. Though the recent numbers are encouraging, easy money has failed to encourage the robust payroll expansion that is the basis for the sustained consumer demand on which our economy depends. It cannot do so in and of itself. Without fiscal policy that incentivizes rather than discourages U.S. capex (capital expenditure), this accommodative monetary policy aimed at reducing unemployment (especially structural unemployment) or improving the quality of jobs is rendered flaccid and less than optimally effective. And as to the housing markets, prices are now appreciating to levels that may be hampering affordability in many markets.

What About Inflation?

As to the issue of inflation, the run rate for personal consumption expenditure (PCE) prices in the third quarter was 2 percent, according to recently revised data. The Dallas Fed computes a Trimmed Mean analysis of the PCE, which we feel provides a more accurate view of inflationary developments. The 12-month run rate for the Trimmed Mean PCE has been steady at 1.3 percent for the past seven months.

As measured by surveys and financial market indicators, expected inflation five or more years out is anchored firmly at levels consistent with the 2 percent rate that modern central bankers now cotton to as appropriate. These surveys and indicators also show expected price increases over 2014 only modestly below 2 percent.

Against this background, I am not of the school of thought that monetary policy need continue to be hyperaccommodative or be made even more so in order to bring medium-term inflation expectations closer to target. I certainly don’t see any justification for seeking to raise medium-term expectations above 2 percent as an inducement for businesses to pour on capex and expand payrolls or for policy to act as an incentive for consumers to go out and spend more money now rather than later. To me, this would just undermine the slowly improving confidence we have begun to see.

Especially given that we have a surfeit of excess liquidity sloshing about in the system, the idea of ramping up inflation expectations from their current tame levels strikes me as short-sighted and even reckless. We already have enough kindling for potential long-term inflation, which will sorely test our capacity to manage policy going forward. I do not wish to add further wood to that pile.

It Is Time to Taper

In my view, we at the Fed should begin tapering back our bond purchases at the earliest opportunity. To enable the markets to digest this change of course with minimal disruption, we should do so within the context of a clearly articulated, well-defined calendar for reducing purchases on a steady path to zero. We should make clear that, barring some serious economic crisis, we will stay the course of reduction rather than give an imprecise nod as we did after the May and June meetings that led markets to believe the program might end as unemployment reached 7 percent.

Only then can we at the Fed return to focusing on management of the overnight rate that anchors the yield curve. To be sure, we may wish to keep overnight rates low for a prolonged period, depending on economic developments. But we need to return to conducting monetary policy that is more in keeping with the normal role of a central bank. We need to break away from trying to manipulate term premia and stop prolonging the distortions that accrue from our massive long-term bond purchases and the risks we incur in building an ever-expanding balance sheet that is now approaching $4 trillion.

Becoming Dentists Once Again

I consider this strategy desirable on its own merit: I would feel more comfortable were we to remove ourselves as soon as possible from interfering with the normal price-setting functioning of financial markets. And I consider it desirable from the standpoint of protecting our limited franchise. As Chairman (Ben) Bernanke has pointed out politely, and I have argued less diplomatically, good monetary policy is necessary—but certainly not sufficient—to return the nation to full employment. Acting as though we can go it alone only builds expectations that far exceed our capacity. And it could lead us to believe that we have a greater capacity to control economic outcomes than we actually have.

If I may paraphrase a sainted figure for many of my colleagues, John Maynard Keynes: If the members of the FOMC could manage to get themselves to once again be thought of as humble, competent people on the level of dentists, that would be splendid. I would argue that the time to reassume a more humble central banker persona is upon us.


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wee-weed up's picture

Spank dat monkey - get it up!

alphamentalist's picture

Butthead: he just said flaccid.
Beavis: yeah, then right after that he said functioning.

zaphod's picture

"Perhaps Yellen (and others) will listen this time?"


Thanks for the laugh

Occident Mortal's picture

He is close to the mark.

It's not access to credit that is holding back growth, it's artificially high asset prices.

The Fed needs to get out of the way and let markets correct so that capital can be allocated in a benign environment. Everybody is waiting for the correction before they invest their CAPEX.

Nobody wants to invest at the top.

fonzannoon's picture

Blah blah blah. The repubs are about to mail it in on the fiscal policy side and the deficits can begin to blow out again in earnest. Shut up Fisher you fraud and lets' let the good times roll!

Al Huxley's picture

Fucking right Fonz, we don't need these bogus naysayers mouthing off - let's party, turn up the fucking volume, pump those fucking indexes, power to the money gods!

orangedrinkandchips's picture

Perhaps Yellen (and others) will listen this time?



Canadian Dirtlump's picture

the program is having it's desired effect. Launder garbage off TBTF banks' balance sheets and parking cash on them.. anything to encourage actual  spending could actually cause some inflation. Due time though.

Race Car Driver's picture

Yellen is a face ... nothing more. This whole shebang is gonna collapse like a lawn chair in a hurricane come January, after the 100 year FED is up. Yellen is just a face that makes it continue to appear 'normal' (whatever the fuck that is) until the rats get off the ship.

ptoemmes's picture

I can hear Schumer practicing his get to work speech.

Dollar Bill Hiccup's picture

FED is a zealot on a religious mission.

This is not metaphorical.


lasvegaspersona's picture

Sorry but the statements coming from  Fed board members are  beginning to sound like 'good cop, bad cop'. They can't admit that they have no choice but to print so they try to make it sound like they are torn about making the right choices.

semperfi's picture

dead-on - its all engineered for sheeple consumption - they are printing between 100 and 200 $billion per month, not $85 billion

booboo's picture

exactly, trying to pretend that each board member is independent thinker and not a series of men and women from different races creeds and colors with the same master. Did I get that right or there something I am not seeing here?

jcaz's picture

Agreed- and Dick Fisher has enjoyed his rock-star status as much as Greenspan does....

Dollar Bill Hiccup's picture

Perhaps the economy needs a new fluffer.

ebworthen's picture

He said "flaccid" fiscal policy; I'm pretty sure that is how Yellen likes it.

The real problem is the existence of the FED itself.

END THE FED; problem solved.

ziggy59's picture

Yellin is definitely not Viagra for anything flaccid...

azzhatter's picture

From the looks of Yellen I doubt she's ever received anything other than flaccid

semperfi's picture

anyone who believes what fisher or any of the other Fed fuckers say publicly is a complete dummass

gamera9's picture

Can Janet Yellen pull a Kim Jung Un on Fisher? Expand the chairmans powers!

Platinum's picture

Yellen was put there because she will go "balls deep" into QE.

Al Huxley's picture

At least the market had the good sense to ignore him - rock star Fed members 4ever - lets party.

Randoom Thought's picture

Rising housing prices only benefit those who prefer to sell their house and live outdoors, those who can get additional financing on their house and invest the money in something that will give them greater gains than the money cost and retiring people who can actually sell their house and move in with their children.

It does not benefit anyone who wants to actually buy and live in a house (as opposed to sell it or borrow on it).

So, how exactly does rising housing prices benefit the middle quartiles again?

dcohen's picture

Richard Fisher is just acting, just like Kocherlakota was before he become a gay dove. It is all a show by the FED to give the impression that there are dissenting voices, they all agree behind closed doors.

Al Huxley's picture

Also, when are we going to be able to buy posters of our favorite Fed members, and who's going to take it upon themselves to start up a gossip magazine so we can keep up on what's happening in their private lives?  I mean, I can find out at the drop of a fucking hat what's going on with Kate and Will, or if Lindsay Lohan's boozing again, or what Katy Perry's latest workout regime is, but do I have any idea where Janet Yellen buys her clothes?  Do I know what James Bullard prefers for breakfast?  Do I know where Richard Fisher's favorite holiday spots are?  NO!!  This is a disservice to all of us - in this modern day of false idol worship, we deserved to be better informed about our monetary god-like masters. 


I'm  fucking pissed about this - who can I complain to?

Nobody For President's picture

You're in fine form tonight, Al.

What brand you drinkin'?

Clowns on Acid's picture

I do think that the Fed has to "taper" back to 70B or so, for appearances only however. They cannot lose control of their own bond market. The BOJ has done its part with QE, and so has the Fed, now it is time for the ECB to jump the shark.

Remember 2 years ago when the Euro was being pummuled and was said to be on the verge of collapse ? The Fed rode to that rescue with FX forward swaps that was really QE in disguise.

They have to control the meme... the Fed will try to maintain it's cred, and taper 15B/mth or so, while saying that unemployment is falling. The ECB will move around the Germany based "no printing" rules to begin their own QE.

Shifting deck chairs around on the Titantic I agree, but the Central Bank Fabians think it will buy them some more time.

Inthemix96's picture

Dick Fisher??

Think about it peeps.

Dick, do me a favour you flaccid cunt.  Go and do one, and take the rest of the thieving peodophilc cunts with you.

Dick Fisher?????

Make me smile anyhoo....


sosoome's picture

"What is holding them (corporations) back is fiscal and regulatory policy that is, at best, uncertain, and at worst, counterproductive."

He is correct on that point.

TrustWho's picture

To The Federal Reserve Board:
I believe the Fed has taken the Trickle Down policy and put it own steroids with ZIRP and QE. I have even bashed a Fed member I like....Mr. Fischer.

I would like to applaud a Fed member for speaking the truth and admitting the Fed needs to demonstrate some humility.

Speeches by President Richard W. Fisher
Comments on Monetary Policy (With Praise for Urban Lehner, Norman Borlaug and Dentists)Remarks before the DTN/The Progressive Farmer Ag Summit 2013
Chicago · December 9, 2013

THANK-YOU MR. Fischer, you can be my dentist as I would trust you would do no harm and would never do something just so you could avoid being viewed inadequate because you did nothing. Life will continue even if even the Fed fails.

Getting Old Sucks's picture

QE is not and never was about the economy,  It's just about giving free money to the banks and the GOV.  They can't stop it now or the GOV goes bust.  Moar Bullshit!

sosoome's picture

In the interests of clear thinking, please explain.

QE is for the banks, but if it's stopped gov takes the hit.

Harbanger's picture

QE is the only thing supporting the already finished (2007) centrally planned Gov economy.  Look at QE as Gov's last effort at trickle down economic growth.

slightlyskeptical's picture

Exactly. Without the Fed there would be no buyers for US Govt bonds unless rates rose significantly. If rates rose significantly we couldn't afford the interest, again resulting in less buyers. The classic catch 22. The end result is that the Fed will be buying US Govt bonds until the point that all faith has been lost in the system.

khakuda's picture

As I remember, only Esther George votes against continued QE.  This guy just yaps a lot while adding ink to the printer.

falak pema's picture

Here is an interesting heading for what its worth : 

Europe Near Deal on System to Wind Down Struggling Banks

Flakmeister's picture

I truly have to laugh...

Calling for more CAPEX in the face of enormous excess capacity in the OECD...

MagicMoney's picture

I laughed too. This was a funny article.