Reckless US fiscal policy will likely force the Federal Reserve to stand pat on monetary policy this month, one of the Fed’s biggest critics of the US central bank’s bond-buying programme said.
Richard Fisher, the hawkish president of the Federal Reserve Bank of Dallas, said that the fiscal standoff means even he would find it difficult to make a case for scaling back bond purchases at the Fed’s policy meeting on October 29-30.
“My personal opinion is that it’s not in play,” Fisher told Reuters. “This is just too tender a moment.”
Lawmakers were working to strike a deal to avoid a government debt default ahead of Thursday’s looming deadline for raising the government’s borrowing authority.
A default by the world’s biggest economy could throw financial markets into turmoil and undercut economic growth in the United States and around the world.
“I personally would have a hard time arguing for us to dial it back” this month, he said. Even if lawmakers agree on a plan to avoid a near-term debt default by giving the US government room to keep borrowing until early next year, “that doesn’t solve the problem”, Fisher said.
Worries about another government shutdown and another debt ceiling crisis in early 2014 led to lousy auctions for short-term US debt on Tuesday. Demand for three-month and six-month Treasury bills was the lowest since 2009.
The Fed’s purchase of $85 billion a month of Treasuries and mortgage-backed securities is meant to spur US investment, hiring and economic growth.
Investors, encouraged by what many Fed officials had characterised as marked improvement in the labour market since the purchases began last September, were shocked when the Fed decided not to trim the programme at its policy meeting last month.
Fisher said he still believes the Fed should have acted in September, in part to burnish its communications credentials.
But even as the threat of a debt default looms, Fisher sought to assure markets that the Fed would respond as necessary “to prevent market chaos”.
The Fed acts in part as the government’s agent in the marketplace.
“I’m more confident that we, my colleagues and I, are better prepared than we were in