A woman recently approached Richard Fisher in a Dallas Starbucks and thanked him.
She had refinanced her mortgage at 4.3 percent, down from more than 6 percent, and she wanted him to know she appreciated what the Federal Reserve had done to lower rates.
“For a banker to hear ‘thank you’ is extremely rare,” Fisher said.
The story, which the president of the Dallas Federal Reserve Bank related during a recent interview at the Houston Chronicle, is significant not just because the Fed has driven interest rates to historic lows, but because it’s also rare for a regional Fed president to be recognized in public.
Having overseen the injection of trillions of dollars into the economy in recent months — a process often referred to, incorrectly, as “printing money” — the Fed has taken a higher public profile than many of its officers, including Fisher, find comfortable. Lower mortgage rates are among the most tangible results of the Fed’s actions. Late last year, the central bank cut to almost zero the fed funds rate, or what banks charge to lend to each other.
One of the reasons for the aggressive move was a huge number of variable rate mortgages that will reset later this year, a process that will continue through 2011. The Fed governors worried those resets would trigger a new wave of foreclosures that would prolong and deepen the recession.
“For me, that was the housing crisis that was coming,” Fisher said. “If we hadn’t done what we did, it would made it a lot worse than what we’ve seen.”
Fisher struck a consistent theme, echoed by many of his regional counterparts and Fed Chairman Ben Bernanke, that the economy is showing the early signs of improvement.
“We are coming back from the abyss,” he said, but he cautions that “it’s going to be a slow slog for some time.”
He cites some positive signs. The short-term lending market for businesses, for example, has “come back to life” and more companies are able to sell bonds, giving them access to capital they need to grow.
The prices paid to U.S. producers rose more than many economists predicted last month, easing fears that price declines, or deflation, would become pervasive and undermine the recovery.
Fisher, an inflation hawk, is quick to note the Fed must be wary that the liquidity designed to stimulate the economy doesn’t trigger inflation. So far, that isn’t a problem because of the slack in both employment and production, Fisher said.
He predicts that unemployment will continue to rise nationally, hitting 10 percent later this year. Texas was the only one of the 12 Fed districts that added jobs last year.
This year, job losses have already hit 119,000 and will probably rise to 300,000 by year’s end, Fisher said.
No one, not even the smartest minds at the Fed, was able to predict the severity of this recession nor the ferocity with which it accelerated last fall.
Overall, the economy still appears to be shrinking. Gross domestic product contracted in the first quarter, though the numbers aren’t final yet. Fisher said the second quarter will show another decline, though perhaps half as much as the first.
“It’s getting less severe,” he said of the decline. So we’re still falling, but we’re not falling as fast.
The day before Fisher arrived in downtown Houston, the Commerce Department reported that retail sales fell for the second straight month, crushing hopes that consumer spending was on the rebound, which many economists see as critical to the recovery. Fisher said consumers are changing their habits.
“I see the consumption pattern being less aggressive,” he said.
That also means, though, that the recovery will be more gradual and perhaps more fragile.
Meanwhile, corporate earnings remain weak. So far, the stock market hasn’t seemed to notice, but a recovery without profits is about as rare as a central banker getting recognized in a coffee shop.
Originally published in the Sarasota Herald-Tribune
