The president of the Federal Reserve Bank of Dallas, Richard Fisher, rejected the idea that higher inflation would spur the economy on Monday.
Saying the last thing businesses needed in this economy was uncertainty, Fisher sided with Federal Reserve Chairman Ben Bernanke in his public feud with Paul Krugman, the Nobel Prize-winning economist and New York Times columnist.
Called “The Battle of the Beards” by The Washington Post, the back-and-forth between the two highly respected economists began when Krugman called on the Fed to raise inflation targets, a move Bernanke called “reckless.”
“I would say that Ben Bernanke’s guilty of understatement. It would be more than reckless. It’s a silly thing to recommend,” Fisher said on CNBC’s “The Kudlow Report.”
“I understand the argumentation from Krugman’s standpoint, from his perspective. He’s just trying to broaden the window to try to make things normal if we were to go below the 2 percent rate. That’s our long-term target. I believe we’re going to stick with it. I personally feel that this is something that is ultra-critical for our credibility.”
Fisher saw the idea of inflation closer to 4 percent than the Fed’s goal of 2 percent as little more than an academic argument.
“What you do is scare people out of holding money in their pocket. They think it’ll be worth less later. They’re going to go out and spend it,” he said. “The pragmatic side of this is that you think about the people that actually hire, create jobs, create consumption, create greater wealth in this country, small businesses, and what happens on Main Street.”
Krugman, “a wonderful academic on trade policy,” was wrong in this instance, Fisher said.
The economy, Fisher argued, can’t weather any distrust in the Federal Reserve – and another round of quantitative easing, being referred to as QE3, would do little to bring relief.
“We’re awash with liquidity. Adding more doesn’t seem to do much good except for create potential inflationary fears,” Fisher said. “That’s not a positive, that’s a negative. Not a good thing.”
“All we’re doing is just subsidizing a government, not allowing the market to price our government debt according to what market forces would allow it to do," Fisher said.
According to him, the Fed's easing meant Congress didn't have to deal with the cost of their "misfeasance and bad policy.”
“I think it’s time for the Fed to get out of the business of twisting the yield curve. We tried it. It doesn’t seem to have worked. I’m very skeptical about it. Personally, I would not support further action on this front, but that’s my view.”
"The Kudlow Report" airs weeknights at 7 p.m. ET.
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