Why the Fed might be tapering into trouble
Richard Fisher, president of the Federal Reserve Bank of Dallas, is neither an academic nor a bureaucrat, which makes him something of a rarity in the United States’ central banking system. He made his pile managing a distressed debt fund before embarking on a career as a central banker. A point of even greater rarity is that he is a perspicacious, provocative and invariably entertaining public speaker.
The fact that he is a voting member of the FOMC, the Federal Reserve’s most powerful decision-making body, does not deter him from explaining why he is a critic of the Fed’s quantitative easing.
His latest speech, delivered earlier this month, was entitled Beer Goggles, Monetary Camels, the Eye of the Needle and the First Law of Holes. It sounds like something penned by Lewis Carroll but carries a very serious message as the Fed sets about winding back its QE program.
At the same time, China – the other major global player – is also tightening the debt-based stimulus program it rolled out to tackle the global financial crisis. Fisher implies the China factor will deliver additional momentum to the volatility created by Fed tapering.
This appears to be the case in the crisis that has recently hit the financial markets of a gaggle of emerging economies, slamming bonds, equities and currencies. The US trigger for the run on the emerging markets was the certain prospect that QE would be further wound back following this week’s meeting of the FOMC
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