Former Dallas Fed president Richard Fisher thinks the Fed is out of tools to help markets.
In an incredible interview on CNBC, Fisher said the Fed “front-loaded” a market rally in the wake of the financial crisis with its quantitative easing program but warned that the fallout is coming — and that the Fed doesn’t have anything left to help markets.
“I don’t think there can be much more accommodation,” Fisher said.
Fisher added (via Mish Shedlock):
The Federal Reserve is a giant weapon that has no ammunition left. What I do worry about is: It was the Fed, the Fed, the Fed, the Fed for half of my tenure there, which is a decade. Everybody was looking for the Fed to float all boats. In my opinion, they got lazy.
Now we go back to fundamental analysis, the kind of work that used to be done, analysing whether or not a company truly on its own, going to grow its bottom line and be priced accordingly, not expect the Fed tide to lift all boats. When the tide recedes we’re going to see who’s wearing a bathing suit and who’s not. We are beginning to see that.”
In short, Fisher is conceding that the major critique of the Fed over the last several years — that they distorted markets and inappropriately — is right.
CNBC’s Simon Hobbs then asked Fisher if he would sort of “apologise” to markets for having sent stocks too far too fast.
Fisher wouldn’t quite go that far, saying the Fed was backed into a corner given the fallout from the financial crisis.
But it was the final round of quantitative easing — launched in September 2012 and by far the Fed’s most controversial post-crisis move — that was not supported by Fisher. And it is this final push from the Fed that he believes created conditions markets will now pay for.
And while you’d expect a Fed official to speak more freely once they have stepped down (Fisher retired last year after taking the top spot at the Dallas Fed in 2005), Fisher’s commentary would seem to open up himself and his colleagues up to even harsher criticism than what they typically face.