FRANKFURT (MNI) – The Federal Reserve is at the limits of what it
can do to stimulate the US economy, Dallas Federal Reserve President
Richard Fisher said Thursday, arguing that only a long-term fix of the
US fiscal situation could restore confidence.

Speaking at Goethe University here, Fisher criticized his Fed
colleagues for suggesting they have a lot more room to expand policy.
“It serves no purpose” for Fed officials “to say we are nowhere near the
limits of monetary easing,” he said.

“There is no ‘to infinity and beyond’ in monetary policy,” said
Fisher, currently a non-voting member of the Fed. “At some point you
have to draw the line.”

Fisher acknowledged that in spite of the Fed’s easing, “inflation
is not an issue in the US right now,” but he warned, with repeated
references to Germany’s period of hyper-inflation, that price
instability can happen “in the blink of an eye.”

But right now the problem in the United States is “too many people
underemployed and too many people unemployed,” Fisher said. He argued
that the Fed had “necessary but insufficient” tools to reduce
unemployment, which he said was a reason for the Fed to go back to the
single mandate of price stability.

Fisher said the Fed has used monetary policy “to the maximum effect
we feel is possible” in order to avoid recession and provide liquidity
to the economy. It is up to Congress to restore confidence in the fiscal
future of the U.S., as well as restoring global competitiveness in order
to build confidence.

“All we can do is provide liquidity. That does not compel people to
use it,” Fisher said. “What compels people to use it is fiscal direction
and confidence in the future.”

Another temporary fix to avoid the looming fiscal cliff would not
help restore confidence or boost employment levels in the United States,
Fisher said.

Congress needs a solution that “assures the markets that a
long-term cure has been found. Businesses cannot plan based on
short-term solutions.”

— Frankfurt bureau: +49 69 720 142; email: ccermak@mni-news.com

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