Federal Reserve - Speeches by Dallas President Richard W. Fisher

Remarks before the Louisiana Bankers Association 114th Annual Convention and Expo
New Orleans, Louisiana · May 9, 2014

Monetary Policy Going Forward: De-Spiking the Punch Bowl 10 Ounces at a Time

Now, if you will indulge me, I want to speak of the direction of monetary policy from here onward.

The Federal Open Market Committee (FOMC) is in the process of winding down its massive purchases of Treasuries and mortgage-backed securities. At our last meeting, in recognition that the economy is improving and acknowledging that we have generated massive amounts of excess reserves among depository institutions operating in the U.S., we voted to reduce our purchases to a combined $45 billion per month, on the path to eliminating them at the earliest practicable date. Speaking only for myself as a voting member, barring some destabilizing development in the real economy that comes out of left field, I will continue to vote for the pace of reduction we have undertaken, reducing by $10 billion per meeting our purchases and eliminating them entirely at the October meeting with a final reduction of $15 billion.

I was not for this program, popularly known as QE3, to begin with. I doubted its efficacy and was convinced that the financial system already had sufficient liquidity to finance recovery without providing tinder for future inflation. But I lost that argument in the fall of 2012, and I am just happy that we will be rid of the program soon enough.

I am often asked why I do not support a more rapid deceleration of our purchases, given my agnosticism about their effectiveness and my concern that they might well be leading to froth in certain segments of the financial markets. The answer is an admission of reality: We juiced the trading and risk markets so extensively that they became somewhat addicted to our accommodation of their needs. You may remember the “taper tantrum” market operators threw last spring when we broached the idea of temperance. It went over about as big as would saying you wanted to ban Hurricanes and other happy-making libations here in New Orleans!