Federal Reserve’s Fisher says tightening will be aggressive

Marshall Auerback pointed out a statement from Dallas Fed Chief Richard Fisher today that is not getting a lot of attention despite its importance.  He said:

I expect that when it comes time to tighten monetary policy, my colleagues and I will move with an alacrity that, if needed, will be equal in speed and intensity to that with which we pursued monetary accommodation.

This is extremely hawkish language from Fisher. If true, it would be an upward move more akin to 1993-1994 than to 2004-2007. If you recall, the Fed Funds rate bottomed at 3% in May 1993. The Fed then aggressively raised rates to 6% in the next two years. This was not the ”measured” interest-rate hike campaign that the Federal Reserve followed after the Dot.com bubble.

The mid-nineties rise in rates led to a major bust at investment banks which were long treasuries like Goldman Sachs and also led to the so-called Tequila crisis (see my write-up on this in a post called “1995.”). This was the first full blown financial crisis of the Greenspan era and it seems the lesson the Fed took from the event was that it needed an asymmetric monetary policy in which rate cuts are more aggressive and quicker than hikes.

We have seen the folly in this policy, euphemistically known as ‘the Greenspan Put’ as gigantic asset bubbles ballooned out of control following cuts in 1998-1999 and 2002-2003. Fisher, a well-known inflation hawk, might be speaking for himself.  Or he might be signaling there will be no Bernanke Put.


Fisher Sees Limit to Fed’s ‘Life Support’ for Housing – Bloomberg

  1. David says

    Does hot air still rise or have they found a way to hedge that? I used to think of the 3 Stooges as Paulson, Bush & Bernanke. That’s now morphed into Sumners, Geithner plus one balding dwarf. Interest rates are going nowhere and the only tightening that’s going to happen is the noose around the average citizens neck. Like everything from the trash heap left over from the Bush administration Bernanke is, was and will continue to be a disaster.

    1. Edward Harrison says

      Just so it’s clear, I don’t buy this one bit. Fisher is jawboning because the Fed can’t be seen as too easy. This was the same tactic they used in 2008 as oil prices rose out of control.

      In my view, jawboning is ineffective when rates are zero percent. It really should be a case of watch what I do, not what I say. I will believe the rhetoric when we see action. Until then, one must assume the Fed will remain easy.

  2. Anonymous says

    I have a hard time believing Fisher. Some people use words and other people use actions…I think Fisher falls into the former. Or maybe, as you mention, he speaks for himself. Two factors strongly discourage increasing interest rates: the fragility of the economy and the fear psychosis of another sharp contraction (which I believe is inevitable at some point despire “recovery” talk). Also, the debt burden is unprecedented as a percentage of GDP. This was not the case in the 1990’s. The US government can ill afford to service the the higher debt burden with higher interest rates today. When Volker raised interest rates to 20% in the 80’s, this debt burden was not a significant concern.

    1. Edward Harrison says

      I don’t really buy it either. Let’s wait and see. You may have heard about the comments from Bill Dudley at the NY Fed. He was talking in a very dovish way. See my comments on that here:


      As for the debt burden, it is the private sector where the levels are most acute. The Federal Government has ample room for maneuver. See this post:


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