Dallas Fed president blames politics, not credit, for sluggish recovery

Richard Fisher, the outspoken president of the Federal Reserve Bank of Dallas, says he’s feeling a little less lonesome following last week’s vote by Fed policymakers to pull back on the central bank’s economic stimulus program.

Fisher, who was in Fort Worth Friday for a community forum, has long argued publicly that the stimulus program has done all it can and should be ended. In response to the financial crisis and sluggish recovery that followed, the Fed bought trillions of dollars worth of bonds, which it does by creating money. That pushes new money into the economy and drives interest rates down, but it can also ignite inflation.

Fisher had opposed the third round of stimulus — QE 3 for short — since Bernanke announced it in September 2012. He had been one of the few to publicly lobby against the idea as far back as early 2011.

On Wednesday, the Federal Open Market Committee voted unanimously to cut its bond-buying program by $10 billion to $65 billion per month. That followed the decision in December to trim the program, also by $10 billion, to $75 billion a month.

Fisher approved of both.

“I don’t feel lonely anymore,” Fisher said during an interview at the Star-Telegram before addressing a business audience at Texas Christian University. “You may have noticed at the last meeting there was unanimity,” he added.

It was the first time since June 2011 that no one on the FOMC dissented, an indication of how contentious the Fed’s responses to the crisis have been. Membership of the FOMC rotates annually among Fed officials, and Fisher is on the policymaking committee in 2014. He has been president of the Dallas Fed since April 2005 and plans to stay until early next year, when he would retire before his 66th birthday.

Fisher’s stance against the most recent round of bond-buying is that the availability of capital isn’t what’s holding back the economy. In his view, political issues are the cause, from the cost of healthcare to taxes to new regulations.

Bankers are Friday’s meeting in Fort Worth largely agreed.

“People are still a little timid to borrow,” said Greg Morse, CEO of Worthington National Bank. “It’s healthcare, they’re talking about pushing up the minimum wage. It’s tough for an entrepreneur to expand,” he said.

Tim Carter, CEO of OmniAmerican Bank, said that beyond lending, his company is an employer with 1,500 workers, and he has the same concerns other employers do. As a result, “there’s a lot of money sitting on the sidelines” waiting for some of the uncertainty to clear, Carter said.

In the interview with the Star-Telegram, Fisher elaborated on a variety of issues including the Fed’s stimulus efforts, the state economy and development in Mexico. Here are edited excerpts.

Isn’t the economic recovery and declining jobless rate evidence that the stimulus worked?

The question of efficacy, whether this works, is debatable. ... The real question is, has it incented business to go out and hire and grow? We’ve seen slow job expansion.

Congress has been the brake while we’ve been filling the gas tank. This isn’t a partisan argument. It is a fact. You wouldn’t want to invest as a businessperson because you don’t know what it’s going to cost you.

Who has benefitted from the stimulus?

The quick and the rich have done very well. Very poor people don’t have access to credit. They depend on a job, that’s the route to dignity. You look at the hyper-rich in this country, and they themselves will say “This has been great for me, but it hasn’t had the same effect for the middle income and the poor.”

We’re seeing an improvement, by the way, in small business, orders from small business are picking up.

The public views Wall Street and the big banks as the cause of the financial crisis. You were on the job during the crisis. How do you reflect on that now, five years later?

In a financial panic, you open the sluice gates. Every central bank has the duty to be the lender of last resort. We had to step in. We did that well. All of us supported it.

I didn’t sleep one night all the way through the night for 18 months. That’s how bad that panic was. Ben (Bernanke) did a brilliant job.

Then we had a political response, the legislation called Dodd-Frank [a massive set of reforms passed in 2010 and regarded as the biggest overhaul of financial regulation since the Great Depression]. I consider Dodd-Frank to be counter-productive. In the end, we have four or five financial institutions that have much more power.

There is an anger out there about concentrated power, and you see it in the banking sector. It’s an unlevel playing field. Right now everybody wants to bank Texas, and the big boys are providing terms and conditions that are hard for even our big regionals — Comerica, Frost Bank — to match. I hear this constantly.

Texas makes up most of the Dallas Fed’s district. How is Texas doing?

We have taken advantage of cheap capital. We have created jobs in every income category. We’re good, aggressive risk-takers. We don’t have as much friction at the state and local level that others do.

You attribute that to culture?

I very much do, and the fact we have a less-intrusive government. Whether it was Ann Richards or George Bush, we’ve had a pro-business government.

Mexico is reforming its energy industry. Do you expect that to open up the nation to foreign investment?

One would assume northern Mexico has as much [oil and gas] as we have. The reforms are necessary in order for them to succeed. They’ve seen the revolution that’s taken place, not just in Texas but all the way up to Pennsylvania.

Mexico is an example of a country that achieved structural change. I grew up in Mexico. They’ve brought inflation down, they actually raised taxes during the economic crisis and balanced their books better. That took a lot of guts. From a macroeconomic standpoint, Mexico is better managed than the United States.