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Fed's Fisher: Washington Must Do More For Economy

Thursday, 18 Aug 2011 | 9:20 PM ET

The Fed has done its job of providing cash and liquidity to help the market, but thanks to uncertainty and confusion in Washington that money is sitting on the sidelines, Dallas Fed President Richard Fisher told Larry Kudlow Thursday.

United States Federal Reserve
Tetra Images | Getty Images
United States Federal Reserve

“We have filled the gas tank. We got lots of fuel in there,” he said. “Someone needs to step on the pedal and gauge the transmission mechanism.”

It’s up to the fiscal authorities, he added, to give incentives to people to engage in and expand the economy. But Fisher said that won’t happen unless businesses are incented to invest and hire more people.

Right now, he said that’s not happening. Instead, there is too much uncertainty in the wake of the “debacle” of the debt ceiling negotiations. While businesses operate under conditions of uncertainty, extreme uncertainty freezes decision making, he said.

Fisher is also concerned that the Fed’s decision last week to freeze interest rates to near zero for the next two years might also further hinder recovery.

Fisher, known as an inflation hawk, dissented last week on that vote, along with two other Fed presidents.

He said he “respects” the majority who voted to extend the policy. However, he fears an unintended consequence could be that businesses will wait to borrow since they now know the rates will be locked in at very low levels for two years.

One-on-One with Fed's Fisher
Richard Fisher, Federal Reserve Bank of Dallas president & CEO, discusses the day's market rout.

“You can’t have a recovery unless we have employment go up [and] unemployment go down,” Fisher told Kudlow. “We won’t have that unless people decide to expand and right now there is almost no incentive to expand.”

In the end, the zero rate policy hurts those who played by the rules—the poor, the savers and the middle class, Fisher said. The reason, he said, is those without the benefit of sophisticated financial advice are getting negative return on their investments.

However, Fisher still believes we have positive economic momentum—although perhaps not positive enough to create the kind of jobs we want. However, he does think we’ll have a positive third quarter.

His advice to investors is "don't panic."

Fisher also addressed the attacks coming from Republican presidential candidatesthis week.

As candidates for the nation’s highest office, they should be focusing on “what’s really needed here, which is to change the whole fiscal mix, to reboot the way we tax, spend, incentivize, and get our economy moving again.”

But the political barbs have no impact whatsoever on the Fed’s decision making.

”We don’t pay attention to this,” he said. “It’s very, very important we have a central bank that is independent.”


Questions? Comments, send your emails to: lkudlow@kudlow.com

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  • Lawrence Kudlow is a CNBC senior contributor. Previously, Kudlow was anchor of CNBC's prime-time program "The Kudlow Report"