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Richard Fisher Feeling Like His Old Self Again

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Following his brief flirtation with sticking by QE3, which he previously called the “ruination of our economy and lifestyle,” the Dallas Fed president is back to wanting to see it sprinting into the sunset as soon as possible, which apparently means October.

When policymakers next meet in two weeks, they are expected to continue trimming the program, but at the same time to pledge to keep interest rates near zero to help nurse the recovery.

If the Fed continues on its current pace, its monthly purchase of bonds will be down to $15 billion by the time it meets in October.

"I will vote to end it in October," Fisher said.

Unlike some people, however, Fisher isn’t ready to tackle the next dragon until the last one is well and truly slain.

"The odds are slim" of a rate rise immediately after the bond-buying program is ended, Fisher, president of the Dallas Federal Reserve, told Reuters in a telephone interview.

"I don't expect we'll raise short-term rates this year," said Fisher, who is a voting member of the Fed's policy-setting committee this year….

The timing of a rate hike "depends on developments in the economy," he said, including inflation and job growth. "I am not going to focus on raising rates until we have completed the wind-down."

That’s right, and he doesn’t even care if his own people are telling him that the un-raised rate is ruining everything. Which they are.

Uncertainty about the direction of the U.S. economy has been associated in recent years with weaker growth, at least in part because the Federal Reserve has kept short-term interest rates pinned near zero, argues new research from the Dallas Fed….

They found only a weak correlation between uncertainty and growth — except in the years since the last recession, when there was “a strong negative correlation between macroeconomic uncertainty and real GDP growth,” they wrote. In other words, more uncertainty has been closely associated with lower growth for the past half-decade.

The economists speculated that this time is different because the Fed has anchored interest rates near zero for the first time. Using an economic model, they found uncertainty is higher when interest rates are at the zero lower bound. The Fed can’t respond to falling demand and output with lower interest rates, and even low inflation creates higher “real” interest rates that potentially restrain economic growth, the economists wrote.

Fed’s Fisher wants October end to QE3; sees no 2014 rate hike [Reuters]
Fed’s George: Raise Rates ‘Sooner and at a Faster Pace’ Than 2015 Consensus [WSJ Real Time Economics blog]
Interest Rates at Zero May Link Uncertainty with Slower U.S. Growth: Dallas Fed Paper [WSJ Real Time Economics blog]