RMG Wealth’s Stewart Richardson sees split emerging between decision makers at US Fed
Stewart Richardson, CIO of RMG Wealth Management, based in London, says there is evidence the FOMC at the US Federal Reserve is starting to split apart over the application of further QE measures.
Our last two weekly commentaries have been scathing of central bank policies. We knew we were not alone, but whenwhen a member of the FED’s rate setting committee backs up what we have been saying, we sit up and take notice. Richard Fisher is the president of the Dallas district of the Federal Reserve System, and has been against QE for some time. He does not believe that QE will make any difference, and not only quotes business surveys and direct conversations he has had with the business community, he is one of only a few FOMC members that has had any banking or financial markets experience in the private sector. Is it not amazing that, out of 19 FOMC members (12 of whom vote), only 4 have relevant private sector experience? The remaining members, including Chairman Bernanke, are academics and career central bankers .
We have taken some quotes from a speech this week given by Richard Fisher (link attached to full speech at the end – well worth a read), and added a few comments of our own. At the very least, it would appear that the FOMC is beginning to splinter in their collective support for QE. We suspect that the debate on the costs and benefits of QE will only escalate in the months ahead, especially when it becomes more apparent that the economy is just not responding. If we are correct on this assumption, and sanity returns to central baking – i.e. they refrain fromprinting and funding profligate governments – then markets will have to revert to fair value. Our belief is that fair value lies some way below the current price we see on our screens.
Quotes from the Richard Fisher speech;
On what the FED does not know – “The truth, however, is that nobody on the committee, nor on our staffs at the Board of Governors and the 12 Banks, really knows what is holding back the economy. Nobody really knows what will work to get the economy back on course. And nobody-in fact, no central bank anywhere on the planet-has the experience of successfully navigating a return home from the place in which we now find ourselves. No central bank-not, at least, the Federal Reserve-has ever been on this cruise before.” (RMG comment i.e.central banks are undertaking an enormous policy experiment whilst flying blind).
Evidence that QE3 is not going to encourage the private sector to create jobs – “Surveys of small and medium-size businesses, the wellsprings of job creation, are telling us that nine out of 10 of those businesses are either not interested in borrowing or have no problem accessing cheap financing if they want it. The National Federation of Independent Business (NFIB), for example, makes clear that monetary policy is not on its members’ radar screen of concerns, except that it raises fear among some of future inflationary consequences; the principal concern of the randomly sampled small businesses surveyed by the NFIB is with regulatory and fiscal uncertainty.”
“With the disaster that our nation’s fiscal policy has become and with uncertainty prevailing over the economic condition of both Europe and China and the prospects for final demand growth here at home, it is no small wonder that businesses are at sixes and sevens in committing to expansion of the kind we need to propel job creation.”