In pressing for a faster retreat from the Fed’s bond-buying effort to stimulate the economy, he represents one extreme in a debate that will test the ability of the incoming chief, Janet L. Yellen, to unite the committee after she succeeds the current chairman, Ben S. Bernanke.
Mr. Fisher sat for an interview this month to discuss monetary policy and the economy before the media blackout that precedes each Fed meeting — as did another new voter, Narayana Kocherlakota of the Minneapolis Fed, who backs continued stimulus.
A transcript of the interview with Mr. Fisher, edited for clarity, follows.
You said after the Federal Reserve’s December decision to reduce its monthly bond purchases by $10 billion that the reduction should have been twice as large. Would you like to see a $20 billion cut at the Fed’s January meeting?
I was pleased with the decision at the December meeting. It was a move in the right direction. I think that’s the key. The economy is doing better and the benefits that we get from [asset purchases], relative to the costs, are diminishing. I was not unhappy. It was the change in direction that was important.
And in January? What would you do if you were in charge?
If I were put in charge, I would abdicate immediately. I would worry for the nation.
But I think it’s a matter of feel. I think there’s an enormous amount of excess reserves, that the amount has never been this high in history, and basically I think the gas tank is full. The issue is, when will businesses step on the accelerator and use that gas to propel the economy forward? They are starting to do so at a greater speed. They are still being held back, but not because they don’t have sufficient fuel.
Having gone down this path, which I believe was not necessary, of adding these last few gallons in the tank, and if you’re going to withdraw that stimulus, how do you do so without creating market havoc? I think you have to go meeting by meeting but my desire as soon as is practicable is to get down to zero. In my view the minimum I would want to see would be $10 billion a meeting, but that would be a minimum.
Herb Kelleher [chairman emeritus of Southwest Airlines and the former chairman of the Federal Reserve Bank of Dallas] is the single largest consumer of Wild Turkey bourbon in the world, and we were talking and we agreed that you can’t go from Wild Turkey to cold turkey overnight. You can get tremors if you just cut it off entirely. I think we need to be cautious but we need to proceed in this direction.
Did you agree with the decision to issue stronger forward guidance — to tell investors the Fed intends to keep short-term interest rates near zero “well past the time” that the unemployment rate falls below the Fed’s current threshold of 6.5 percent?
If you think of somebody like me sitting at that table, the principal desire I had was to see us reduce the rate of accumulation of these [asset purchases], and if you think in terms of what you wanted to get out of the meeting versus what you had to pay for it, in my own little mind, for me, that was a cost that I was willing to pay in order to get a reduction in the rate of asset purchases. Some people were advocating that we might move the threshold. We did not, so I was happy with that.
You have highlighted the decline in the unemployment rate as evidence that the economy is gaining strength. But a lot of the drop has happened because people are dropping out of the work force.
We’re close to 6.5 percent; I’m happy with that. I’m not happy with the fact that we have so many people that have dropped out of the work force but there’s a limit to which monetary policy can have an impact there. I’m of the firm belief that monetary policy can only impact cyclical unemployment, which is a very important point. Whatever mismatches we have because of people that have dropped out of the work force, we cannot affect structural unemployment.
What I worry most about is that everybody is looking to the central bank of the United States to solve their problems. We get things done and we do so with comity, not comedy. There’s none of the kind of angst that Congress creates. But because we work smoothly under Ben’s leadership, and I believe we’ll continue to do so under Janet’s, I’m deeply worried that it will become commonplace to believe that the Fed will solve your problems. It can’t.
Surely some part of the decline in labor force participation is cyclical? We’ve seen, for example, little recovery in the rate of employment among men ages 25 to 54.
This crude number that we have of unemployment is a crude thing, but after listening to all the discussion we’ve had around that table, about gradations or submeasurements, I’ve concluded that the best we can do in terms of looking at a marker is the unemployment rate.
You make a point of talking with a long list of chief executives about the health of the economy. What are you hearing lately?
What I’m hearing is a better mood than I’ve heard before. If I could summarize what I’ve heard, the mentality that still prevails is the drive to increase the productivity of their work forces and also to drive down the costs of operating their businesses. Another thing I’m hearing is that the fourth quarter was pretty good; December was stronger than people expected. And the third thing I’m hearing is that they would like clarity about taxes and federal spending and regulation — particularly the health care initiative. I hear an enormous disdain for the current administration and for the Congress. I haven’t heard in over a year plus that they need cheaper money or more access to money. There’s not one business leader, woman or man, large or small, public or private that says we need more monetary accommodation.
Some of your colleagues say they see no evidence of the kind of overheating in financial markets that could threaten the stability of the financial system. You disagree. Why are people looking at the same markets and drawing such different conclusions?
Fischer Black used to say that things look much more efficient on the banks of the Charles than they do on the banks of the Hudson. My background is different. I came out of the markets. I’m proud that I’m not an economist. I bring a different perspective and I think that perspective is important here. There’s a lot of money out there chasing few good companies. There’s too much money out there. The weak operators are priced beyond their value. Over time, something has to give.
You are notable among critics of the Fed’s stimulus campaign for having avoided any warnings about the risk of short-term inflation.
I have not been worried about short-term inflation. What I am worried about is, what do we do when we see a pickup in the velocity of money? I want to make sure that it is not a problem long term.
You had a memorable line in a recent speech describing your concern that the Fed’s enormous balance sheet would make it harder to keep inflation under control: “The eye of the needle of pulling off a clean exit is narrow; the camel is already too fat.” Do you doubt that the Fed has the necessary tools?
Our New York desk is first-rate. The talent pool, the capacity to execute, no problem. It’s really a question of whether we’ll be conscious of — and when I say we, there are a lot of people that won’t be there going forward — the question is whether future policy makers will be cowed by potential criticism.
You dissented twice during your last turn as a voting member of the F.O.M.C. in 2011. How do you decide when to disagree publicly?
When I was asked to take this job, I went to see Alan Greenspan and I said, ‘Now that I’m in the inner sanctum, what do you require?’ And he said, ‘Just speak the truth, Richard.’ And that’s exactly what I do.
The last thing I do before I dissent is I pray. I admire my colleagues so much, but when you are feeling that you can’t support what is proffered. … You don’t do it easily. I’ve never done it to be a pain. You do it to disagree. And I always say a little prayer before I cast my vote. This is a solemn responsibility.
What do you pray for?
To help me make the right decision. And to be fair-minded.
I’ve heard other F.O.M.C. participants say that they would only dissent as a means of influencing the debate — that is, they see dissent as a tool, not a matter of principle.
I think it’s a little bit of both. You want to condition things to the degree that you can. But you’d have to be vainglorious to think that your dissent is going to have to become the subject of intense interest. There’s no one who’s vainglorious at that table. But it also is a question of how many dissents there are. I think every Fed chairman needs to remember that Paul Volcker was voted down by his committee, and Paul Volcker is the Moses of central banking.
Do you think that you have been influential in shaping the course of policy?
I speak my mind and I’m encouraged to do so and that’s gratifying enough.
You will turn 65 this year, the mandatory retirement age. …
Some people expect me to resign by midyear. No way! I’m very happy with the fact that I get along with my colleagues. Sometimes I win the arguments and sometimes I don’t. This is a very refined game that we’re involved in and I feel that I’ve had an influence to a degree and I’m comfortable. Absolutely. Why wouldn’t I be? It’s the greatest privilege in the world to be in this group. I’ve done a lot of things in my lifetime, I’ve served in two administrations. I’ve never had a job that was as fulfilling as this one. And then the last thing you need to understand is that I do run a bank. The presidents of the regional reserve banks operate businesses. That’s my background and I love it. We run a big vault operation and two-thirds of U.S. currency is printed in Fort Worth, Texas, and we run the vaults and big cash operation. I like that business side of what I do. It’s not just the F.O.M.C., and particularly in my case, I love the business of running a central bank division, which is the Federal Reserve Bank of Dallas. People forget that. I love both aspects.
We’ve talked about your disagreements with Ben Bernanke. Assess his legacy.
The thing I admire most about Ben Bernanke, and I think Janet will be the same, is that he really goes all the way around the table, not just with the voters, he lets everyone speak however long they wish to, and he listens and respects whatever he hears at the table. When I contact him, he gets back to me in minutes. Unless he’s there — then he picks up the phone. He is a good captain.
“We had intense meeting after meeting — how do you deal with this implosion of the financial system and the threat of the destruction of the global economy?”
Whether you are for QE3 or not, the issue here is, when the peanut butter hit the fan, who stepped up to the plate? Bernanke had just taken the job. He did know a great deal about the Depression, but he had to step up and take command when everything else was dysfunctional in the U.S. government. He led all of us. We had intense meeting after meeting — how do you deal with this implosion of the financial system and the threat of the destruction of the global economy? The way he handled the crisis was brilliant. If you come from academia, to understand market operations and to learn as quickly as he did, I just admire the way that he was able to grip all of this.
Another aspect of Ben that I find remarkable: In a town where everybody is power-crazy, he has retained his humility. I will give you a specific example — my wife was a trustee of Blair House, and they have receptions over there and my wife couldn’t be with us one evening and they asked if I could take Anna, Bernanke’s wife, as my date. She had never seen Blair House before. And at the end a giant limousine pulls up and another trustee asked Anna if she would like a ride home and she says, ‘I took the Metro to get here and I’ll take the Metro to get back.’ This is the most powerful economic policy maker in the world and his wife travels by Metro! That’s why I love these people. They have not let their heads be turned. He’s an example of the way that public servants conduct themselves. Time will, of course, judge whether we went too far or didn’t do enough or whatever it may be. But the fact that he has kept his humility — I admire him enormously.
What changes do you expect under Janet Yellen?
The economy is in a different place. To the extent that we’re shifting gears here, that’s where you’ll see the change. It’s really because of the different circumstances.
I think there’s a little too much discussion of whatever personal biases she brings to the table. This is not Janet Yellen now. This is the chairman of the Fed. Everybody looks at her and says this is the way that things are going to go. It doesn’t work like that. She’s now a leader who has to bring consensus to the table. I personally think she’ll do it very well.
A growing share of your colleagues on the F.O.M.C. are former academics and career public servants. You are unusual in having significant experience in the financial industry. Does that trend concern you?
I worry about it a little bit. I’d certainly like to see some bankers on the Board of Governors and right now we don’t have one. And amongst the presidents, the only two that were bankers are me and Dennis Lockhart [the president of the Federal Reserve Bank of Atlanta]. I think you need to have a mix. We are increasingly preoccupied with market stability and how markets operate. As we unwind what we have created here, however long it takes, whatever the pace is, we have to be market-sensitive. It’s helpful to have people understand how market operators and bankers think. We’ve got to have some of those at the table.