Easing has run its course, says Fisher

As Janet Yellen was preparing to effortlessly pass her examination by a US Senate Banking Committee this week, another US Federal Reserve heavyweight was revisiting his roots in this country.

As Janet Yellen was preparing to effortlessly pass her examination by a US Senate Banking Committee this week, another US Federal Reserve heavyweight was revisiting his roots in this country.

Self-proclaimed "half Aussie" Richard Fisher is president and chief executive of the Federal Reserve Bank of Dallas, one of the 12 regional banks that - with the seven-member board of governors that Ben Bernanke currently chairs and Yellen will chair from January - are charged with preserving price stability, financial stability and full employment in the world's biggest economy.

Bernanke led the unprecedented easing of monetary policy by central banks that accompanied the global financial crisis and its aftermath. It injected an astonishing $US21 trillion of new liquidity into the global system, Fisher estimates.

Yellen gets the job of devising an exit strategy, and the market's hunch, strengthened after her committee appearance, is that she will take her time.

The Fed's Open Market Committee will decide and conduct the retreat when it happens. The Fed governors and the president of the Federal Reserve Bank of New York are permanent voting members, and Yellen will become FOMC chair when she becomes Fed chairman. Another four voting positions on the FOMC are taken on rotation by regional Fed bosses, and next year it is Fisher's turn. He believes monetary stimulus has reached its limit, and should be reducing.

He has an unusual curriculum vitae for a US central banker. His father was born in Toowoomba in 1904. At the age of five years and two months he was arrested in Maryborough on vagrancy charges along with his father, Richard Fisher's grandfather, after being found sleeping under a grated bridge near the town's railway station.

After being briefly held in a tough reformatory school his life traced what Richard Fisher has called a Dickensian arc, in antediluvian foster homes in Queensland, in South Africa where he bought a bus with a Xhosa partner and built a company that was compulsorily acquired by the government for a fraction of its worth, in Mexico, and finally in the United States, where he hired himself out as muscle to collect a $200,000 corporate debt in Shanghai, and then sold airplanes in Indonesia, used cars in Florida, suits in New York and women's undergarments in the Caribbean.

He drank whiskey and smoked three packs of cigarettes a day most of his life, and lived until he was 90. A friend once commented that his own father had done the same and only lived to 60, Fisher said. "He just didn't do it long enough" was his father's reply.

Richard Fisher was conceived in Shanghai ("I was made in China," he told a Melbourne CEDA gathering that was supported by CPA Australia), and arrived at the Dallas Fed after studying at Harvard, Oxford and Stanford, and working in investment banking, founding a hedge fund, and unsuccessfully running for a Senate seat in Texas. During his visit here he travelled to Maryborough, and stood on the spot where his father was sentenced.

He said this week he was "the son of a gutsy Australian who managed in one generation to secure his family's rise from homeless to Harvard". As a half-Aussie and a full-blown Texan he pulled no punches, he said, and just as Yellen has been typecast as a dove who will keep easy money flowing, he is typecast as one of the FOMC's most vocal hawks.

When the Fed contradicted its messaging in September and did not begin reducing its $US85 billion a month quantitative easing program he said for example that he disagreed with the decision, and had told the FOMC that it would "increase uncertainty about the future conduct of policy and call the credibility of our communications into question".

In her appearance before the Senate Committee, Yellen gave no hints of an early QE claw-back. US unemployment of 7.3 per cent was still too high, she said, the economy was performing "far short of its potential," and inflation was below the Fed's target and expected to stay there for some time.

Fisher's view is that Washington's failure to maintain fiscal discipline has neutered fiscal policy as a foil to monetary policy. "We have had to carry the ball solo," he said in Sydney earlier this month. "This is an unhealthy thing for any central bank, and comes with not insignificant risks."

He believes that the huge amount of liquidity in the global system is latent inflation that will be released as the speed at which money circulates in the economy accelerates from very depressed post-crisis levels.

The cure is monetary policy tightening, and it should be pre-emptive: central banks need to anticipate inflation, not try to react to it after it has arrived.

It's an unfashionable view. The talk these days is more often about the risk of deflation. Fisher seems confident that next year his voice will be heard, however.

"The way a governor votes doesn't determine how she chairs the [FOMC] group," he said in Melbourne. "Her views don't prevail - it is a consensus business."

He also thinks that when the QE taper does begin, the markets can handle it - were ready to do so in fact in September when the Fed surprised by not launching the taper. "We've given a gift to the markets," he told the CEDA-CPA forum. "Of course they don't want us to take it away. They are like kids ... grow up would be my answer."

mmaiden@fairfaxmedia.com.au

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