Dallas Fed’s Fisher Sees ‘Positive Momentum’

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Dallas Federal Reserve President Richard Fisher brushed off concerns of looming deflationary pressures and told CNBC on Monday that he believed the U.S. economy is moving in the right direction.

“We had an exceptional performance number in June for manufacturing here in Texas,” he said on “The Kudlow Report,” adding that he wouldn’t read too much into manufacturing slowdown over the past two out of three months.

“I do worry about things slowing down. I do think we have positive growth underway. We are the shining star in the United States relative to the rest of the world.

“I see positive momentum, Larry. We have to be careful not to talk ourselves into a double-dip recession.”

Fisher said he did not support the Federal Reserve extending “Operation Twist,” a move the Fed announced last week to push down longer-term interest rates through the end of the year.

“We have over $2 trillion sitting on the sidelines in publically traded companies. We have additional money on the sidelines lying fallow in financial institutions,” he said. “The question is why would you add to it?”

Fisher noticed that the economy already faces uncertainty “because of regulatory and fiscal policy adding that to the mix makes things worse.”

“We have liquidity on the sidelines, and in a way we are in a big trap. Should we add more? We’ll see what the committee later decides,” he added.

Asked by host Larry Kudlow whether it was possible that the Fed was missing signs of impending deflation, Fisher said such an assessment might be premature.

“We calculate inflation according to a true mean on the personal consumption expenditure. It’s a market basket of real things that people actually use,” he said. “I have been saying for some time despite my hawkish reputation and instinct that I didn’t think we had an inflationary problem. We were going to trend back to and below 2 percent, so our trim mean right now is running at 1.6 percent, indicating that’s where things seem to be going. It doesn’t make me feel uncomfortable. I'm happier there than i would be with high inflation.

“I don’t see deflation immediately. I think, Larry, you may be precipitous. We have to watch the data as we go through time. Right now, we are running, particularly if you strip out the most volatile things and recently – oil has been extremely volatile – and you look at the underlying entrails, the run rate is about, a little bit less than 2 percent. I’m not uncomfortable with that. We’ll have to keep monitoring it.”

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