Dallas Fed Chief Fisher not buying Operation Twist
Richard Fisher, president of the Federal Reserve Bank of Dallas, is sticking to his contrarian view on the Federal Open Market Committee's "Operation Twist" plan, saying it could be a confidence and jobs killer.
The FOMC left interest rates low last week and announced plans to buy $400 billion of Treasury bonds to lower long-term borrowing costs. The bond-buying program begins Oct. 3, and has been dubbed Operation Twist in homage to a similar Federal Reserve program from the 1960s.
The central bank will reinvest principal payments from agency debt into agency mortgage-backed securities, which is a reversal from prior attempts to stimulate the economy by reinvesting the proceeds into Treasurys.
Fisher in Dallas Tuesday said the purpose of operation twist "seeks to drive down the cost of capital for businesses in order to induce them to invest more in expansion and create more jobs."
"Implicitly, the program may also lift short-term sales, albeit mildly given the expectation that rates at the short end will remain at exceptionally low levels through mid-2013," he said.
Fisher, along with Charles Plosser, president of the Philly Fed, and Narayana Kocherlakota of the Minneapolis Fed, once again dissented to the latest FOMC policy decisions, marking the most opposition on the committee in nearly two decades.
After speaking with business leaders, Fisher said he became worried that "embarking on an operation twist would provide an even greater incentive for the average citizen with savings to further hoard those savings for fear that the FOMC would be signaling the economy is in worse shape than they thought."
Fisher said the average citizen may see Operation Twist as a prelude to QE3 — or another period of aggressive accommodative fiscal policy. He said banks would be pressured by "suppressing the spread between what they can earn by lending at longer-term tenors and what they pay on the shorter-term deposits they take in."
Ultimately, Fisher said if these FOMC policies are rolled out and continue to disappoint along the same level of QE2 and other initiatives, the end result "might well be working against job creation."
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