Richard Fisher’s change of heart

July 14, 2009

Dallas Federal Reserve President Richard Fisher at first voted against the Fed’s Dec. 16 decision to aggressively chop benchmark interest rates to near zero, but reversed his decision during a lunch break shortly afterward, a book about the Fed slated for August publication reveals.

“I felt after going for a walk down the hall that I didn’t want to pull the legs out from under Ben, and I didn’t want to be perceived as not being a team player,” Fisher says in David Wessel’s “In Fed We Trust,” an inside look at the Fed’s reaction to the financial crisis that exploded in the summer of 2007.

The Fed’s policy-setting Federal Open Market Committee decided to cut rates by almost a full percentage point, an unusually large cut, to fight back hard against a darkening outlook for the economy, which was in desperate condition after the Lehman Brothers failure and the spreading contagion of soured credits.  Fisher, who had dissented four times that year (including once when he thought the Fed should raise rates to quell inflation worries), at first felt that another move down wouldn’t help the economy and would in fact hurt struggling banks’ profits and people who lived on interest from their savings, and voted against the rate cut before changing his mind.

Ironically, Bernanke had been more worried that another Fed official — the reliably hawkish Philadelphia Fed President Charles Plosser — would dissent, and lobbied him before and during the meeting, arguing the Fed needed to maintain a united front during a time of crisis. Plosser backed the rate cut too.

(Photo of Richard Fisher delivering a lecture at Harvard University, Feb. 23. Reuters/Brian Snyder)

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