Rising commodity prices have brought the hawks at the Federal Reserve out in full throat.
Richard Fisher, the president of the Federal Reserve Bank of Dallas, said in a speech Tuesday that he can’t imagine backing another round of stimulative central bank policy.
Fisher wasn’t a voting member of the Federal Open Market Committee when it voted last November to begin its second round of quantitative easing, a $600 billion bond-purchase plan the Fed is using to prop up domestic demand for goods and services. But he said Tuesday in a speech in Dallas that he can’t imagine voting for another round of asset purchases that might well be dubbed QE3, should it come to that.
Barring some unexpected shock to the economy or financial system, I think we are pushing the envelope with the current round of Treasury purchases. I would be very wary of expanding our balance sheet further; indeed, given current economic and financial conditions, it is hard for me to envision a scenario where I would not use my voting position this year to formally dissent should the FOMC recommend another tranche of monetary accommodation.
Fisher’s anti-inflation leanings are no secret, so his remarks hardly come as a shock. And of course, the gesture of dissenting is not exactly unprecedented, and a lot of good that did Tom Hoenig of the Kansas City Fed.
Even so, it is clear that the central bankers of the nation have been stung by surging commodity prices since QE2 started, and now they are lining up to show they would be on the right side of the issue if it came up for debate again.
Earlier Tuesday, Jeffrey Lacker of the Richmond Fed said the strength of the recovery means it is time to “quite seriously” re-evaluate the need for further bond purchases under QE2. Last month, Charles Plosser of the Philadelphia Fed outlined the limits of monetary policy, implying the central bank should get out of the stimulus business sooner rather than later.
Ben Bernanke would no doubt agree with all these comments if asked, while emphasizing the duty of the Fed to uphold its dual mandate to promote employment and price stability. The problem is that a country can’t just turn its back on a decade of misguided economic policy without suffering some real pain, and as long as the Fed has the power to delay that reckoning, it is going to pull every lever to do so – until the cost of inaction is so high that it can’t be ignored.
So by all means, believe Fisher when he says:
And I expect I will be at the forefront of the effort to trim back our Treasury holdings and tighten policy at the earliest sign that inflationary pressures are moving beyond the commodity markets and into the general price stream. I am a veteran of the Carter administration and know how easily prices can spin out of control and how cruelly markets can exact their revenge. I would not want to relive that experience.
But politics being what they are, we’ll still probably come much closer to reliving it than any of us would like.
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