Fed's Fisher: Weak Dollar Hurts US Economy

A weak dollar can create a "negative feedback loop" spurring inflation and sapping growth, Dallas Federal Reserve Bank President Richard Fisher told CNBC, leaving the threat of currency intervention hanging.

"When we've cut rates, since others have not moved in the same way...if we had a weaker dollar as a result of that, then it feeds back into the price loop; raises prices here domestically, slows down the economy as consumption gets crimped," Fisher said in a live interview.

Fisher is a voting member of the Fed's interest rate-setting committee this year and dissented at the last three meetings in favor of either a smaller reduction in interest rates, or no change at all.

The Fed has recently stepped up its rhetoric about the weak dollar, which notched record lows against the euro as the Fed slashed interest rates to shield the economy from a housing crisis while the European Central Bank hinted at rate hikes.

U.S. Treasury Secretary Henry Paulson pointedly declined to rule out intervention to support the dollar in a CNBC interview earlier on Monday.

Fisher, when asked the same question, took a similar line.

"I watched the Paulson interview, I'll leave it as it was. You never take anything off the table. The key thing is to get our own house in order," Fisher said.

The ECB has steadily resisted pressure to lower interest rates and Fisher said that he understood why ECB President Jean-Claude Trichet was taking a hard line on inflation.

"From Mr Trichet's standpoint I understand his perspective. He has a 10-year old currency...you have to establish its credibility, and the best way to establish credibility is through price stability," Fisher said.