Richard Fisher Visits CNBC's THE KUDLOW REPORT


Dallas Federal Reserve Bank president Richard Fisher spoke with CNBC's Larry Kudlow tonight on THE KULOW REPORT. Below is a transcript:

LARRY KUDLOW, host: So does President Obama’s re-election pave the way for even more easy money from Ben Bernanke’s printing presses? What about the Fed and the fiscal cliff? Is there a relationship? Well, let’s go to an old friend of the show, Dallas Federal Reserve Bank
President Richard Fisher.

Thank you, Richard, we appreciate it, as always. Listen, let me just ask you, if the worst case scenario comes and taxes go up $500 billion at the end of the year and we go into recession, as the CBO and others say, what should–I’m not asking you what would–but in your judgment, what should the Fed do anything about that?

Mr. Richard FISHER (Dallas Federal Reserve President): Well, Larry, this is purely my opinion, but so far we have been carrying the ball trying to stoke recovery with monetary policy. It would be nice to have the fiscal authorities get their act together so we wouldn’t be
dependent on monetary policy. There’s a limit to what we can do. We just can’t have what I call a Buzz Lightyear monetary policy “to infinity and beyond” because every time we purchase a Treasury Security–and the duration of our securities and treasuries is now out
to eight years, almost eight years–what we’re doing is we’re encumbering, as a fiduciary, those who will follow upon us and they’re going to have some very tough Hobson’s choices to make just as the Congress now has to make. I want the Congress to make them…

KUDLOW: Right.

Mr. Fisher: …so that we are not stuck carrying the ball. And that’s
the problem we have right now.


Mr. Fisher: But it can’t go on forever, Larry.

KUDLOW: I understand.

Mr. Fisher: It has to at one point reach a point of no return.

KUDLOW: I understand. I mean, neither money nor the fiscal mess can go on forever. But the point is…

Mr. Fisher: Right.

KUDLOW: …in whatever, 48 or 49 days, if the worst case comes to bat, and let’s take it down the road, Richard, just to make this even harder. Say the big tax hike kicks in end of the year, first quarter goes negative, the Congress is scurrying around, they don’t get a deal together, the second quarter goes negative. Will the Fed then, you know, instead of buying $40 billion worth of mortgage bonds and creating the amount of money, will they have to buy more? In other words, does the Central Bank see itself as a safety net position if, in fact, Congress and Washington are as irresponsible as you suggest they are?

Mr. Fisher: Well, you asked for my opinion, I do not see us as that safety net. There is a limit. We have fiduciary responsibility to the American people. If we keep violating or we violate that fiduciary responsibility, then we’re really on the road to perdition, Larry, because we’ll have bad fiscal policy and bad monetary policy. Again, there’s a limit. We’ll have to discuss as a committee what that limit is. As you know, I haven’t been in favor of much of the accommodation already, but I’ve lost that argument. It’s a civil discussion. But we just can’t continue down the road of infinite expansion of monetary policy. You’ve got to have reasonable fiscal policy.

The more we do, in my opinion, the more it gives these guys who are our politicians an excuse not to do what we elect them to do.

KUDLOW: Absolutely. You’re…

Mr. Fisher: They need to get their house in order.

KUDLOW: Federal Reserve’s been the great enabler. It’s been the great enabler, there’s no question about that.

Mr. Fisher: Well, we’ve also done our duty. Remember, we are charged by Congress with a duel mandate. Inflation right now is under control. Inflationary expectations are under control. This is a hawk speaking right here, and I am fully confident in arguing that.

KUDLOW: I know you are.

Mr. Fisher: But…

KUDLOW: I know you’re a hawk…

Mr. Fisher: …the second mandate…

KUDLOW: …but the Fed–the Fed is indirectly buying up all the bonds.

Mr. Fisher: The second mandate, Larry, is we need to create the conditions for full employment, and that’s where we can get into a deep trap if we go on forever. I don’t think we will go on forever.

KUDLOW: All right. Well, let me ask you today…

Mr. Fisher: And if we do…

KUDLOW: Let me ask you today, Vice Chair Janet Yellen, who is a potential Fed chairperson after Mr. Bernanke retires in I guess early 2014…

Mr. Fisher: Mm-hmm.

KUDLOW: …now, she’s said a lot of things in a very interesting speech.

Mr. Fisher: Right.

KUDLOW: But one of the things, Richard, she said was she believes that based on various computer models of the economy, that the target rate should be near zero through early 2016, early 2016. Now that is the longest out there that I have heard yet. It’s like a new bid. What do you make of that? What’s your comment about Ms. Yellen’s early 2016?

Mr. Fisher: Well, each of us has an opinion. That’s her opinion. She’s speaking for herself, not for the rest of the committee. And what our concern is, whether it’s Janet Yellen or Richard Fisher or anybody else, is that we continue to go down this path of not solving our fiscal imbalances. And Larry, here’s the important point. We need to completely reboot tax policy. We need to completely reboot spending policy. And as your guest from the AFL-CIO said, he was correct. This is all about job creation. We have to create jobs in a globalized
world. We have to build confidence in the business community who are the job creators. And until we give them some clarity, they’re just going to hold back. And if we have temporary fixes to the fiscal cliff, that just pushes out the envelope of indecision until they have
a sense of true direction.


Mr. Fisher: And it’s time for our politicians…

KUDLOW: Yeah, but…

Mr. Fisher: …Democrats and Republicans, to get their act together.

KUDLOW: Yeah, OK, but my guest…

Mr. Fisher: We cannot substitute for them.

KUDLOW: But my guest from AFL-CIO wants to raise the top investment tax rates and the top income tax rates. And by the way, the Obamacare investment tax rates kick in, another 3.8 percent. Do you think that’s the way to create jobs?

Mr. Fisher: No, I’m not arguing that at all, and I’m not going to comment on the specific fiscal policy. Just get the job done. Give the business community and those who employ people in the private sector a sense of direction and confidence. And right now they know nothing. They don’t know what their taxes are going to be, have no idea what spending patterns are going to be. They don’t know what the cost of these massive regulatory initiatives are going to be. And both Democrats and Republicans have to figure out what counts the most, how to put the American people back to work. That’s the route to dignity,
it’s the route to prosperity. No business can plan right now. If you can’t plan, you can’t budget, you can’t have CAPEX, you can’t plan your payroll. So nothing is being done except for we at the Federal Reserve actually get things done. And we’re unique in Washington, I’m
proud of that, but we can’t carry the ball all by ourselves.

KUDLOW: Just in a nutshell, Richard, how’s the economy look to you?

Mr. Fisher: I like being in a nutshell.

KUDLOW: In a nutshell.

Mr. Fisher: What’s that, Larry?

KUDLOW: How’s the–how’s the economy look to you?

Mr. Fisher: It’s positive, but it’s anemic. It’s not growing fast enough. We here in Texas are very fortunate because our job growth is running above 3 percent, but we have other sections of the country not running so well. I can see a 2 percent growth rate for what it’s


Mr. Fisher: It’s just a number–in the second half of this year. But that’s not enough to create the kind of jobs that we need to put the American people back to work. That will not happen, Larry, until the politicians get their act together.

KUDLOW: All right. Good stuff. Well done. Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas. I must say, sir, I couldn’t agree more. I think you’re dead right. Anyway, moving right along…

Mr. Fisher: Yeah. Then I’m in trouble, Larry. Thank you.