Fed's Fisher: Will do what it takes to control inflation
Tue Oct 10, 2006 1:07pm ET
By Veronica Brown and Antonina Vorobyova
LONDON, Oct 10 (Reuters) - Dallas Federal Reserve Bank President Richard Fisher said on Tuesday he is comfortable with U.S. interest rates at current levels but stressed that they could rise further if inflation, already on the high side, does not come under control.
"I'm very comfortable with the policy of where we are today," Fisher said in a question and answer session in London after delivering a speech on globalisation.
But "if it appears that we haven't done enough to quell inflation, then obviously I would be in favour of additional measures," he said, adding: "The current rate of inflation is too high."
The Fed's favoured index of non-food, non-energy inflation rose 2.5 percent in the 12 months to August, the biggest gain since April 1995 and well above the 1 to 2 percent range many officials have said they would like to see.
While month-to-month changes in core inflation have moderated after a surprise acceleration earlier this year, on a year-on-year basis underlying inflation continues to mount.
Fisher, a non-voting member of the Fed's rate-setting Open Market Committee, said that the Fed's inflation-fighting credentials are not in doubt, something that financial markets appreciate.
"I do not believe that there is any doubt in the market as to our reseolve for dealing with inflation and keeping it under control," Fisher said.
"I will do everything to make sure inflation doesn't raise its ugly head."
The federal funds rate has been on hold at 5.25 percent for two months now after the Fed broke a string of 17 consecutive rate increases earlier this summer.
Fisher downplayed concerns over the U.S. housing market correction, which he said was one of the most over-analyzed and over-anticipated in history. He recognized that the sector has gone through a rocky patch recently and has contributed to the slowing of overall economic growth. But he warned against becoming fixated about one sector of the economy, adding that housing and the auto sector apart, the United States is firing on all cylinders.
That belief appears to be attracting converts in financial markets. In recent sessions traders have pushed up the dollar, stocks and bond yields and pared back expectations that the Fed might cut rates in the early part of next year to cushion the economic slowdown.
In his speech Fisher said that international policymakers must take into account data on the working of the global economy as they try to set domestic monetary policy.
Spotty data on many emerging economies -- or no data at all -- showed the complexity of the task that policy-makers face, though they had to consider whatever was available, Fisher said.
"The bottom line is that we have a great deal of accounting and analytical work left to do as we seek to refine our ability to make monetary policy in a globalised world," Fisher said.
Fisher said that, for example, it was hard to properly gauge capacity utilisation rates in any one country without taking into consideration rates in the global economy.
"I believe it is insufficient to think in terms of domestic resource utilisation alone in our globalised world: we need to be looking at capacity and slack at the global level," Fisher said: "But how do we measure these things?"
In many emerging economies, the data needed to make such calculations "simply don't exist", he said.
He noted that in China, despite the fact that it is in the midst of a fixed-asset investment boom, "there are no official estimates of its capital stock which is a basic component in measuring an output gap".
In China's case, despite its growing economic might, information on capacity utilisation or unemployment figures that might shed some insight on how near to capacity its economy was operating "are spotty at best, released erratically and difficult to interpret", Fisher said.
