Federal Reserve Bank of Dallas President and CEO Richard Fisher defended Texas’ substantive job growth over the past decade Wednesday, but called on candidates and elected officials to stop “pointing fingers” at the Fed and further damage the institution’s credibility.
Fisher is considered one of the Federal Reserve’s stars and has a track record in both the public and private sector that rivals the nation's best and brightest. But then again – Fisher has always been in the financial community’s elite group of intellects and is viewed as a potential chairman of the Federal Reserve.
Last week, Fisher addressed a group of business and community leaders in Midland, Texas, not only defending Texas’ record of job creation but also outlining his reasons for opposing the Federal Open Mark Committee’s decision to leave interest rates near zero going well into 2013. It was a decision the Texas CEO described in saying, “There could be unintended consequences.”
The subject of job creation in Texas has been widely discussed on the GOP presidential campaign trail and in political circles as a result of Texas Governor Rick Perry’s entry into the presidential primary.
Perry, obviously touting his state’s steep economic growth in light of the economic challenges facing most of the nation, has come under attack by critics for what has become known as the “Texas Miracle,” a reference to the ratio of new jobs in Texas compared to the national average.
Yet Fisher uses hard and objective economic data that will dispute Texas’ critics.
For example, “Non-agricultural employment growth in Texas has compounded at an annual rate of 1.95 percent over 21 ½ years; that of California at 0.57 percent and New York at 0.19 percent,” Fisher stated in his remarks.
One of the most impressive statistics Fisher put forward was from the period of June 2009-2011; Texas had accounted for 49.9 percent of net new jobs created in the United States.
Interestingly, education and healthcare, combined with professional and business services, accounts for 26 percent of all jobs in Texas. Mining, which encompasses oil and gas, employs only 2.1 percent of the Texas population – a surprising statistic for those unfamiliar with Texas economics.
Fisher took the opportunity to explain his vote in opposition to the Fed’s decision to hold interest rates low and for a specified period of time, an unprecedented statement in modern times.
He’s concerned the central bank was easing monetary policy to protect investors after U.S. stock prices saw a dramatic drop.
Fisher believes that there is abundant liquidity available to finance the expansion of the economy and create jobs in America.
“The banking system is awash with liquidity [cash],” Fisher stated. “Domestic banks are flush; they have on deposit at the 12 Federal Reserve banks some $1.6 trillion in excess reserves, earning a mere 25 basis points – a quarter of 1 percent annum – rather than earning significantly higher interest rates from making loans to operating businesses.”
The comments were made when referring to the fact that banks and credit unions aren’t making as many individual and business loans and therefore are unable to maximize income by charging interest on such loans. Lending requirements have tightened significantly and financial institutions have had to “write-off,” or walk away from some construction and real estate loans when customers where unable to may payments or pay off the balance.
The excess cash Fisher was referring to is just sitting in the bank and not generating revenue for the bank or shareholders. Corporations are also sitting on higher cash reserves and not spending on expansion or by adding many employees to their payrolls.
“I have said many times that through the initiatives we took to counter the crisis of 2008-09, and the dramatic extension of the balance sheet that ensued, the Fed has refilled the tanks needed to fuel economic expansion and domestic job creation,” Fisher added.
Fisher describes himself as someone “constantly preoccupied” with price stability, but also as a “hawk” on inflation. He said he believes that nonmonetary factors such as consumers not having confidence the economy will improve, as being a bigger problem than the economic policy set forth by the Fed.
“I would suggest that unless you were on another planet, no consumer with access to a television, radio or the Internet could have escaped hearing their president, senators and their congressperson telling them the sky was falling," Fisher said. "It does not take much imagination to envision consumer deciding to forego or delay some discretionary expenditure they had planned."
Fisher tied together the impressive job growth in Texas and his dissenting vote to keep interest rates low for so long. He highlighted the reason that Texas’ population and job growth were outpacing the rest of the nation; that jobs will continue to go where taxes, spending and regulatory policy are properly positioned to support such growth.
“The sooner they get on it, the better,” said Fisher. “Uncertainty is corrosive; it is hurting job creation and capital expansion when we need it most.”
The Fed president also handed out advice to candidates before they freely criticize the Federal Reserve. Two of Texas’ own GOP presidential contenders, Governor Rick Perry and Congressman Ron Paul, have openly criticized the Fed’s monetary policy of printing money and the current chairman, Ben Bernanke.
In his first week on the campaign trail, Perry made reference to Federal Reserve Chairman Ben Bernanke’s actions to boost the economy by issuing more currency as “almost treasonous.” The comment brought an onslaught of criticism from defenders of the Bank and its chairman.
“Pointing fingers at the Fed only diminishes credibility…Only Congress, working together with the president, has the power to write the rules and provide the incentives to correct the course of the great ship we know and love as America. I hope you, as the voters who put them in office, will demand no less of them,” Fisher said in conclusion.