The president and CEO of the Federal Reserve Bank of Dallas delivered a somber economic message Monday night (Feb. 23) during the annual Albert H. Gordon Lecture at the John F. Kennedy Jr. Forum. But while Richard Fisher admitted that policymakers should have heeded the signs of financial stress long ago, he expressed hope that central bankers can play a key role in bringing the global economy back to health.
“Only yesterday, it appeared that the economy was cruising along in the most tranquil of seas,” Fisher said. “To be sure, there were some signs of friction developing … but to the unsuspecting world, all was well.”
Everything changed last year, Fisher said, when the housing market collapsed, credit markets seized, Wall Street crashed, workers began losing their jobs, and entire industries suddenly became vulnerable.
“There are plenty of armchair quarterbacks who now claim to have seen all this coming,” Fisher explained. “Indeed, we must acknowledge that many in the financial community, including those at the Federal Reserve, failed to either detect or act upon the telltale signs of financial system excess.”
And today, Fisher remarked, the U.S. and many of the world’s other largest and typically most productive economies are contracting.
“We might call this the ‘Godzilla Economy,’” Fisher said. “It presents a monstrous challenge.”
In response, the central bank has initiated several programs over the past year aimed at injecting liquidity into the markets and attempting to stabilize the banking systems of the United States’ top 14 trading partners. While the ultimate results of those actions are still unknown, Fisher says the bank is willing to consider further actions if necessary.
“These are complex, trying times. Our economy faces a tough road,” he said. “We are the nation’s central bank and we are duty bound to apply every tool we can to clean up the mess that has soiled the face of our financial system and get back on the track of sustainable economic growth with price stability.”
Yet Fisher also warned that the bank must be cautious in deploying all of the weapons in its arsenal, and must avoid undermining confidence in its independence and its commitment to long-term economic stability and growth.
“Most important of all,” he said, “we must continue to make clear that we will unwind our interventions in the market and shrink our balance sheet back to normal proportions once our task is accomplished, for this is, indeed, our unanimous and unflinching intention.”
Fisher was introduced at the podium by Kennedy School Dean David T. Ellwood. The forum was sponsored by the Institute of Politics.