Ex-Fed's Fisher: Bernanke wrong on inflation

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Federal Reserve policymakers should not wait until inflation rises to their 2 percent target to increase interest rates, former Dallas Fed President Richard Fisher said Tuesday.

"Just because it's not at 2 percent doesn't mean you don't start the process because this is a huge tanker going through the sea and you start slowing down way out before you dock," Fisher told CNBC's "Squawk Box," estimating inflation between 1 and 2 percent based two widely followed price measures.

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Former Fed Chairman Ben Bernanke argued strenuously on the program Monday that the central bank's 2 percent target is sacrosanct.

"Easy money is justified by the need to get inflation up to the target," he said on CNBC, making his case for why the Fed should not rush to increase rates.

Bernanke, in Monday's interview, also refused to second-guess current Fed Chair Janet Yellen on her decision not to increase rates at the FOMC's September meeting, saying it's a "tough call."

Fisher agreed with Bernanke, "It's a tough call."

The Fed meets later this month, but the futures market has all but ruled out a hike. The odds of a December move increase to 34 percent, according to the CME FedWatch tool, which tracks daily reaction on potential changes to the fed funds target rate. The probability increases into next year.

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"No former chair wants to interfere with the business of the new chair," said Fisher. "[But] Janet Yellen will determine [Bernanke's] fate in history. This isn't over. We don't know if it has worked. It worked temporarily," referring to the extraordinary measures undertaken at the Bernanke Fed after the 2008 financial crisis to try to boost the economy.

Richard Fisher
Katie Kramer | CNBC

"This is a four-act Shakespearean play," Fisher continued. "We don't know if it's a comedy or a tragedy."

Fisher served as president of the Dallas Fed for a decade, ending his tenure there in March. Earlier in his career, he was deputy United States trade representative during Bill Clinton's presidency.

Commenting on the newly signed Trans-Pacific Partnership (TPP), the biggest trade pact in two decades encompassing 40 percent of the world economy, Fisher said the accord lowers costs to consumers worldwide. "It's a tax cut."

"Every administration waits until the very end and pushes for free trade, freer trade," he said. "I admire this administration" for tackling this issue. But he warned the hardest part of negotiating trade agreements is hashing out the details with Congress, the TPP's next stop.

President Barack Obama faces a tough sell, with widespread opposition among Democrats and wavering support from Republicans, who had pushed through the administration's request earlier this year for "fast track" negotiating authority.