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An ineffective, fractious and fiscally irresponsible government has slowed the US recovery and counteracted the stimulative effects of Federal Reserve’s super-accommodative monetary policy, a top Fed official said on Monday.
“While the Fed has been moving at the speed of a boomer in full run, the federal government of the US has at best exhibited the adaptive alacrity of a koala (without being anywhere near as cute),” Dallas Fed president Richard Fisher said in remarks prepared for delivery to the Australian Business Economists.
“Unlike in most recoveries, government has played a countercyclical, suppressive role,” Fisher said in Sydney. “The inability of our government to get its act together has countered the pro-cyclical policy of the Federal Reserve.”
The Fed is buying $85 billion in assets each month to spur growth and hiring by pushing down long-term borrowing costs. The programme is the Fed’s third round of so-called quantitative easing, and last week it opted to extend its policy support after a series of soft readings on the economy.
Fisher opposes the Fed’s bond-buying programme because he said he believes it can do little to boost the economy as long as lawmakers continue to bicker over the budget and fail to confront long-term fiscal imbalances.
He said any tapering in the Fed’s bond-buying stimulus programme will depend on the strength of economic data. Fisher also said US corporate balance sheets are stronger than ever but added that he was concerned corporate credit spreads have narrowed too much.
Fisher has long been concerned by the Fed’s “hyper-accommodative” monetary policy, in part due to the danger of market disruptions when it comes time to slim down its massive balance sheet. He has also warned that keeping policy too easy for too long could seed future inflation.