One on One with Richard Fisher, President of the Dallas Federal Reserve Bank
Tuesday, February 26, 2008
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SUSIE GHARIB: Fed officials were talking about inflation risks today, a day ahead of Chairman Ben Bernanke's testimony in Congress. Fed Vice Chairman Donald Kohn said price stability is the Fed's long-term goal and St. Louis Fed President William Poole said the rate cuts are already working. But this morning Richard Fisher, president of the Dallas Federal Reserve Bank told me in an exclusive interview that inflation numbers are worsening. Fisher is a voting member of the Fed's open market committee and was the only policymaker who voted against a cut in interest rates at the policy meeting in January. My first question to Fisher: is he more or less concerned about inflation these days.
RICHARD FISHER, PRES., DALLAS FEDERAL RESERVE BANK: I'm more concerned about inflation than I have been of late. It's a growing concern. We see it particularly in commodities and energy products. Those are usually taken out in core inflation measurements. However, in Dallas at the Dallas Fed, we don't use a core measurement. We use a trim mean measurement. And even on that basis, we see inflationary levels rising. The question is, will it feed into expectations of consumers and businesswomen and men here in the United States. And I do have a concern that it is beginning to feed into expectations. And that is something we worry about at the Federal Reserve.
GHARIB: Mr. Fisher, certainly we have seen some troubling reports about inflation recently including today's PPI news. Do you think that the Fed is taking a chance by continuing to worry about economic growth?
FISHER: Well, look, we have a dual mandate. Our job is to create the monetary conditions for sustainable non-inflationary employment growth. So there, there's -- to grow that aspect, there's the inflationary aspect. We're all very mindful whether we speak as individuals or when we act as a group about our duties on the inflation front, as well as on the growth front. And I think you can safely assume that we're keeping both in mind as we develop and conduct monetary policy.
GHARIB: As you look at the shape of the economy today, do things look any different than they did four weeks ago when you voted against an interest rate cut?
FISHER: I think it's too soon to form a judgment as to whether the economy is a bit weaker than I expected or inflation pressures are worse than I expected. But clearly the numbers that have come through indicate that we're in for a period of prolonged, slow economic growth. As you know, we expect growth to raise up in the second half of this year and as we end the year. But at the same time, I am concerned about inflation. I've expressed it as such. I'm not unique on the open market committee. All of us are mindful of our need to not plant some seeds for future inflation as lag monetary policy takes grip on the economy after six months or so, however long the lag may be.
GHARIB: What would you have to see happen in the economy that you would support another interest rate cut?
FISHER: Well, I don't want to get into where I'm leaning for the next meeting, but I would very much like to see a subsiding in inflationary pressures, as they are coming to us through the globalized channels of the modern, new economy that we have. It's not enough, in my opinion to assume that if we slow down domestically here, that that will give us the relief that we would to have or I would like to have on the inflationary front. Again, we have what economists would call incoming elasticity of demand in China, which leads to faster energy consumption than even their growth rate, very high rates of consumption for food as they move up the income ladder. They want to eat and dress and look and drive cars just like you and I do. And as they improve their capacity and their wealth, they're going to be consuming more. And so we have sustainable economic pressures on prices that are no longer cyclical, but rather fundamental and I'd like to see some relief on that front in order to feel more comfortable with where to go next with monetary policy.
GHARIB: As a Fed bank president with a district that's right in the oil patch, does $100 oil make you more concerned about its impact on inflation or its impact on squeezing consumers and economic growth?
FISHER: It's both. One has to consider whether these are temporary forces or longer-term forces. I believe there are longer term, tectonic structural forces at play. If they were temporary, I'd be less concerned about them. I'm more concerned because I think they have to do with demand pull, as I mentioned earlier, coming from the world at large as it grows and the ability of supply to respond. I'm concerned also by the way that the futures markets for oils have not proven to be very good indicators of future oil prices. So if we have these sustained high price levels, if gasoline at the tank goes as it has up $0.08 two weeks ago, $0.09 this past week and keeps rising, no doubt it will feed into inflationary expectations of consumers and then businesswomen and men who run businesses and that's what we have to guard against.
GHARIB: From everything we're hearing from Wall Street to Washington, the message is that the U.S. economy is going to slide into a recession. Do you think recession is a serious possibility?
FISHER: I've said this before, I don't like the buzz word recession. I don't think it is likely. It's always a possibility. We have to guard against it. We have to be risk conscious in terms of what the different tail risks are out there in the system. But I don't think that's a mainstream analysis right now. I expect fully that we will be picking up economic steam as we approach the second half and towards the end of the year and that's where we are presently. But we'll keep examining that assumption.
GHARIB: Well, let me throw another word at you that's been coming up in a lot of discussions about the economy: stagflation. I'm not talking about the stagflation of the 1970s, but do you see a return to some form of stagnant economic growth and high inflation. Is that a possibility?
FISHER: We like these buzz words, recession and stagflation. I don't think that's the issue. The issue is, how can we conduct monetary policy and use the tool kits that we have in order to provide the conditions for sustainable non-inflationary growth? That's what our hearts are set on, that's what our minds are devoted to, that's what we're trying to achieve.
GHARIB: You've mentioned a couple of times that you see a pick-up in the economy in the second half of the year. Let's say that does happen. Will we see a shift in monetary policy?
FISHER: If we expect an economic pick-up to occur in the second half of this year, as I do, say during the third quarter, and then the decisions we take now are important in terms of impacting what might be happening then. And that's one of the reasons I personally was reluctant to cut rates further than 3.5 percent. Now, again, depending on whatever data comes in, that viewpoint may change. I think it's a -- we have to be very careful to work with the assumption that we can change courses radically, that we can suddenly shift our monetary policy. That's not the way central banks typically operate. I'm not sure that's the way central banks should operate.
GHARIB: Well, many people have argued that the last down cycle, the Fed was slow to reverse course. Do you think the Fed will be quicker in picking up rates this time around and is this something that policy makers talk about and think about?
FISHER: I think it's premature to talk about picking up rates. Right now, we're just trying to get it right. And a lot of consideration, a lot of deliberation goes into this. This is not a trigger finger-oriented organization, nor is it a trigger finger-oriented committee. So an enormous amount of study and effort and anecdotal evidence and thought goes into this process. And I think it's best to let our own actions speak, our words speak for themselves when we change policy and when we say what we do after each one of our meetings.
GHARIB: Mr. Fisher, thank you so much for your time. We appreciate you talking to NIGHTLY BUSINESS REPORT.
FISHER: Thank you, Susie.
