Dallas Fed s Fisher warns against itchy trigger finger on rate cuts

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Dallas Fed CEO Richard Fisher said today that the Fed s primary job is not to save investors from risky investments and that the US economy does not appear to be in need of saving anyway,
comments that are likely to be seen as a sign that a cut in the federal funds rate next week may not be as automatic as many economists and market-watchers feel.

In remarks for a Texas economic forum that were made available to reporters, Fisher said that what guides him at FOMC meetings is showing wisdom, and "having a steady hand rather than an itchy trigger finger."

"I set aside the passions of the moment and the conventional wisdom in the markets and keep a steady focus on the Fed s mission," said Fisher, a non-voting member of the Fed. "Conducting monetary policy is not a popularity contest."

He also appeared to further deflect demands from market participants to cut the federal funds rate by saying markets have always been "manic-depressive" in reaction to changing market realities.

"To live up to what is expected of us, we have to make considered judgments and not react to the latest data point or the instant analysis that is ubiquitous on the Internet or in the news media or among the countless financial analysts who pump out commentary like water from a fire hydrant," he said. " Instant analysis is a wonderful oxymoron a true contradiction in terms, like jumbo shrimp or funny economist but hardly the stuff of serious deliberation."

Fisher also reiterated what has become a standard Fed sentiment, which is that the Fed s primary job is not to protect "specific risk takers who failed to protect themselves from potential downside wounds."

"The Federal Reserve s job is to protect the system itself," he said. "My colleagues and I take that responsibility very seriously."

More broadly, Fisher said he believes economic fundamentals in the US are still sound despite problems related to the subprime mortgage market and tightening credit conditions.

After the meetings he has had with CFOs and others in preparation for the September 30 FOMC meeting, Fisher said he is upbeat about the US economy despite skittishness in the markets.

"Amidst this clamor and drama, some might have lost sight of our economy s great resiliency," Fisher said. "[I]t is fair to say that I am encouraged by what I have heard against a background of constant negative speculation and the occasional discordant note, such as last weeks employment numbers. Our economy appears to be weathering the storm thus far."

Fischer did say that the appropriate policy course is "still to be determined".

However, he also noted strong second quarter growth, growing US exports, and low unemployment as signs of a healthy economy.

"I am generally encouraged by what I have heard and seen so far: As yet, tighter credit conditions do not appear to have had a major impact on overall economic activity outside of real estate," he added.

He also warned that monetary policy tools are "insufficient, by themselves" to deal with subprime fallout.

"My guess is that a great deal of the potential dislocation resulting from corrective reactions to the subprime boom will be resolved by regulatory initiatives rather than by monetary policy," he said.

JKL

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