MacroScope

Congress “smashed the instrument panel” of U.S. economic data: Fed’s Fisher

Richard Fisher, president of the Dallas Federal Reserve and one of the U.S. central bank’s arch inflation hawks, took us by surprise this week – he told Reuters that, given all the uncertainty generated by the government shutdown, it would not be prudent for the Fed to reduce its bond-buying stimulus this month.

“It is just too tender a moment,” he said. That was on Tuesday, before a last-minute deal averted a debt default but set up additional uncertainty by pushing the statutory spending cap into February.

Fisher said he wishes the Fed had begun the so-called ‘tapering’ process in September as markets has expected. But while he did not rule out a pullback from the current $85 billion monthly pace of asset purchases in December, he did acknowledge the next couple months of data could be “noisy” as economists try to weed out temporary shutdown effects from the broader trend.

Not to mention that some key data releases like the September employment report have been delayed. Comparing the monetary and fiscal authorities to co-pilots on a plane, the always-colorful Fisher said Congress hadn’t just pulled on the brakes even as the Fed continued to push full-throttle: “They’ve smashed the instrument panel.”

No wonder market participants, who were so certain about a Fed move in September, can’t seem to get a read on its likely timing now. As Capital Economics puts it it in a research note, monetary policy has become “a slave to fiscal uncertainty.”

Texas-sized jobs growth turns puny? Don’t y’all believe it, Dallas Fed says

Is the pickup in U.S. jobs growth over before it even started? That’s the conclusion you might reach if you checked out the latest Texas employment update from the Dallas Fed , which shows the Lone Star state added only 4,000 jobs in January.Texas, as boosters like Dallas Fed President Richard Fisher never tire of pointing out, has been an enormous engine of job growth for the United States since the end of the Great Recession.

The state added 335,000 jobs last year. For it to generate a paltry 4,000 jobs in January – well, that sounds like bad news.

Dallas Fed chief regional economist Pia Orrenius isn’t a bit worried. Last year’s data also came in too low initially – what turned out to be 3.1 percent growth was originally estimated at 2.5 percent growth. “Nothing happened to suggest we suddenly slowed in January,” she said in a phone interview. The regional Fed’s manufacturing survey was strong, and the oil rig count was up, she said. Both November and December’s initial jobs figures were revised up sharply, she said. As for January, “We expect this will be revised up as well.” Stay tuned for those revisions then. The state’s run as a driver of U.S. employment growth  may not be over yet.

As U.S. debates immigration, Fed’s Fisher tells his dad’s story

When Dallas Federal Reserve Bank President Richard Fisher and inveterate QE3 critic spoke Thursday evening at a black tie insurance industry event in booming Dallas, he left monetary policy out completely. As he often does with a speech directed at fellow Texans, he bragged on the Lone Star State, its job-generating prowess and its resilience since the Great Recession.

And then, in a tale he rarely tells publicly but that has particular resonance amid the rancorous national debate on immigration, he talked of another spectacular success: his dad. “This man is why, despite the current slow economic recovery we are experiencing outside of Texas, despite the fiscal tomfoolery of our national politicians, both Democrats and Republicans, despite the negativism and bad news that pervades the headlines, I have great faith in this country,” he said.

At age five, Fisher’s father was convicted of being a “neglected child” in Queensland, Australia, having been found sleeping under bridges and in doorways with his drunken father. He was sent to a reformatory, then to an orphanage, then to a series of foster families, one of which tied him up in the yard at night by the ankle and woke him “ in the predawn hours to deliver milk by horse drawn carriage.” His teeth rotted. He went to South Africa, drove buses, married, and sailed to the United States, “only to discover that his record and lack of documentation made him inadmissible.”

The risk from China’s shadow banks

Many blame America’s shadow banking system, where dangers lurked away from the scrutiny of complacent regulators, for the massive financial crisis of 2008-2009. Richard Fisher, president of the Federal Reserve Bank of Dallas, said in a speech on Thursday that he is now worried about the risks to China from its own version of the shadow banks.

During the recent credit boom fueled by the 4-trillion-yuan fiscal stimulus, off-balance-sheet lending by banks and private loans by nonbanks exploded. This shadow-banking lending activity accounted for an estimated 20 percent of China’s total loans in 2011. With the cooling of the real estate market and with slower economic growth likely in the near term, a large share of these loans could turn bad. And because these loans took place outside the view of regulators, the effect of a sudden disruption in repayment is virtually impossible to predict.

Fisher was highlighting this concern to suggest that, while China’s efforts to reform its currency system are welcome, the authorities must be careful not to open the country up to volatile capital flows at a time when the world financial system is already very fragile:

Too big to fail banks? Break ‘em up, Fisher says

Dallas Federal Reserve Bank President Richard Fisher wants the biggest U.S. banks broken up, calling them a danger to financial system stability and their perpetuation a drag on the economy.  It’s an argument he’s made before – in full-length speeches, asides to reporters, parries to audience questions. (For the latest iteration, see Dallas Fed bank’s annual report published Wednesday.)

Indeed, Fisher is among the most consistent of Fed policymakers. He’s against further quantitative easing – has been ever since QE2, back in 2010. (By contrast, Minneapolis Fed President Narayana Kocherlakota supported QE2, before reversing course and opposing new rounds of monetary easing in 2011 and 2012). He’s against big banks, of course. He says repeatedly that uncertainty over taxes and regulation, not too-high borrowing costs, is what is holding back businesses from investing and hiring.

He’s even consistent with his jokes: several times last year Fisher lampooned the Fed’s increasing emphasis on transparency, quipping that no one wants to see a “full frontal” view of a 100-year-old institution. That particular joke dates back to at least 2006, according to a transcript of a Fed policy-setting meeting from October of that year. “Uncertainty is the enemy of decisionmaking,” Fisher said then, lambasting market participants eager for the Fed to provide more clarity on its views. “Of course they want more frequent forecasts. Governor Kohn and I talked about this before. They want a full frontal view. I find a full frontal view most unbecoming.”

Love, dissent and transparency at the Fed

All four Federal Reserve policymakers who dissented on U.S. central bank policy this year will lose their votes next year. That could make the New Year full of love, but not necessary free from dissent, Dallas Fed President Richard Fisher joked on Friday.

Fisher, like Minneapolis Fed President Narayana Kocherlakota and Philadelphia Fed President Charles Plosser, lobbied and lost against Fed easing earlier this year; all three dissented twice. Chicago Fed President Charles Evans dissented twice from the other side of the aisle, arguing for further easing at the most recent two meetings against the majority’s decision to stand pat.

None will have votes next year. Not, of course, because they voiced their opposition to the majority, but simply because votes rotate among regional Fed presidents according to a set schedule, and it just so happened that all four regional Fed presidents with votes this year used those votes to dissent.