Idiot Revisited: Fisher
A while back, last September 9th to be exact and right before the world really fell apart, I took some flack for calling the Dallas Fed President Richard Fisher the economic idiot of the week. If you don’t recall why, let me help you. As the world was rapidly deflating in a giant credit crunch, Mr. Fisher’s position was described in the Fed’s meeting minutes as
“While the financial system remained fragile and economic growth was sluggish and could weaken further, he saw a greater risk to the economy from upward pressures on inflation.” [Emphasis mine]
A few months later he changed his tune and accepted that the right thing to do during a credit crunch is not tighten credit, but rather expand credit and liquidity. Thankfully, Bernanke already knew this.
I raise this issue again because Mr. Fisher was in the news again today. Bloomberg reported on some of his remarks this week. I’ll quote from Bloomberg’s article (again, emphasis mine):
“Fisher, 60, also dismissed the concerns of some central bank watchers that its record purchases of assets will cause inflation to soar. Policy makers are “constantly aware” of the need to consider an exit strategy from their unprecedented emergency initiatives during the crisis, and will end the programs at an appropriate time, he said.”
So, the Fed’s #1 self-proclaimed inflation “hawk” doesn’t see inflation coming anytime soon. The article continues: Fisher
said it’s inappropriate to be a “screeching hawk” on price pressures now because of the amount of “slack” in the economy. He said he isn’t surprised by rising yields and reiterated his position that deflation, or an extended and broad decline in prices, is a greater risk than inflation.
“Long term, we all know inflation is a monetary problem, and you could have inflationary pressures,” he said. Still, “that is not the issue right now.”
I can think of several plausible reasons for this about face. 1. Mr. Fisher went back to the books and re-learned how financial crises work and adjusted accordingly. 2. He knew it all along and really isn’t an idiot. Rather he saw fit (or the comittee saw fit) to have one of them voice dissent and remain hawkish so that it appeared someone was keeping an eye on inflation. Fisher “took one for the team” by tarnishing his reputation to protect the intellectual rigor of the Fed. 3. Mr. Fisher’s opinion is easily swayed by the momentum of the day. I hope no. 2 is right, but he deserves credit for no.1 too. Option 3 would allow him to keep his idiot title. Not that he is truly an idiot, but I wouldn’t appoint him the Federal Reserve if true.
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