Economics, Pethokoukis

Is Dallas Fed president Richard Fisher another possible convert to NGDP level targeting?

A great catch by Reihan Salam, who notices this bit over at the WSJ’s econ blog:

U.S. companies “have the resources they need to do what we want them to do–in this case, invest in job creation,” Federal Reserve Bank of Dallas President Richard Fisher said. “But as long as that fence of uncertainty is in place, they will not be able to perform,” the policy maker said.

The central banker did not address the monetary policy outlook, but he did say that when it comes to Federal Reserve bond buying “quantitative easing is a necessary but insufficient tool to spark job creation.” He added, “employers will not deploy the cheap and abundant capital on hand toward job creation while there is so much uncertainty surrounding final demand for the goods and services they sell.”

Now Fisher, who’s been fantastic on financial reform, has been dubious of the Bernanke Fed’s quantitative easing strategy. Yet the central banks has slowly and clumsily been making its way toward a rule-based monetary policy system that would address Fisher’s concerns. As Salam notes:

What is odd here is that uncertainty surrounding final demand for goods and services is arguably best addressed by the kind of nominal GDP level target that Mark Carney, governor of the Bank of Canada, has all but endorsed. Regulatory and tax-related uncertainties are undoubtedly important, but maintaining steady nominal GDP growth is arguably the most direct way to address the anxieties of employers that Fisher rightly identifies as a barrier to investment.

Ding, ding, ding! I think what Fisher needs to better understand are the constraints on NGDP level targeting and why it wouldn’t be just Keynesian license to print money to juice growth.

2 thoughts on “Is Dallas Fed president Richard Fisher another possible convert to NGDP level targeting?

  1. It doesn’t take much guessing to know what Fisher thinks. Here is what he said to the NY Harvard Club in
    Sept http://www.dallasfed.org/news/speeches/fisher/2012/fs120919.cfm

    ” Nobody really knows what will work to get the economy back on course. And nobody—in fact, no central bank anywhere on the planet—has the experience of successfully navigating a return home from the place in which we now find ourselves. No central bank—not, at least, the Federal Reserve—has ever been on this cruise before.

    This much we do know: Our engine room is already flush with $1.6 trillion in excess private bank reserves owned by the banking sector and held by the 12 Federal Reserve Banks. Trillions more are sitting on the sidelines in corporate coffers. On top of all that, a significant amount of underemployed cash—or fuel for investment—is burning a hole in the pockets of money market funds and other nondepository financial operators. This begs the question: Why would the Fed provision to shovel billions in additional liquidity into the economy’s boiler when so much is presently lying fallow?”

    So what’s wrong?

    “My assessment of the efficacy of further monetary accommodation in encouraging job-creating investment among operating businesses was recently confirmed by a more rigorous analysis in the Global Business Outlook Survey of chief financial officers by the Fuqua School of Business at Duke University—the Harvard of the South—in September.[4]

    Of the 887 CFOs surveyed, only 129, or 14.5 percent, listed “credit markets/interest rates” among the top three concerns facing their corporations. In contrast, 43 percent listed consumer demand and 41 percent cited federal government policies. Ranking third on their list was price pressures from competitors (thus affirming most hawks’ sense that inflationary pressure is presently sedentary); fourth was global financial instability. The analysts at Duke summarized their findings as follows: “CFOs believe that a monetary action would not be particularly effective.”

    Consumer demand. Maybe we should be asking if Fisher is a Keynesian.

  2. Less undertanty about taxes, health care costs, future regulation, out of control national debt / spending and the ways the current administration might seek to futher redistribute wealth (capital) might help consumers decide to buy goods and services. Fisher seems to recognize that Keynsian QE’s haven’t encouraged consumption, so I don’t think you can call him a Keynsian. Actually I understand that there is a debates whether Keynes would be considered a Keynsian considering the permanancy of the government’s role as constant stimulator.

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