Dallas to Frankfurt

Shades of the Bundesbank

Richard Fisher President Federal Reserve Bank Dallas. Source: Kai Nedden for Handelsblatt
Mind his words: Richard Fisher.
  • Why it matters

    Why it matters

    The world is watching as the Federal Reserve debates when to raise interest rates for the first time since the 2008 financial crisis. The Fed’s moves will have major ramifications for the European Central Bank.

  • Facts


    • Richard Fisher is head of the Federal Reserve Bank of Dallas, one of 12 districts that make up the U.S. Federal Reserve.
    • Mr. Fisher has been a voting member of the Fed’s rotating decision-making board this year. He will retire in the spring.
    • The Fed has held interest rates at a record low of 0.25 percent since December 2008.
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The euro zone and the United States might be facing a world of different problems at the moment. Yet listening to Dallas Federal Reserve chief Richard Fisher speak, you can’t help but hear echoes of Germany’s central bank president, Jens Weidmann.

The two men are outliers on their respective central banking boards – hawks as they are known in the United States – because they tend toward a more narrow interpretation of a central bank’s mandate and would typically like to see higher interest rates to guard against inflation.

Mr. Fisher joked that the Dallas Fed, one of 12 central banking districts in the United States, is “known as the Bundesbank of the Federal Reserve system.”

“We know, just as the Bundesbank knows, just as the European Central Bank knows … that the monetary authority has limited power,” Mr. Fisher said.

“There are some like me that think [a rate hike] will be earlier than the market is discounting.”

Richard Fisher, President, Federal Reserve Bank of Dallas

In that sense, Mr. Fisher and Mr. Weidmann have been fighting similar battles, only at different points in the economic business cycle. The Bundesbank fears that the ECB, which steers monetary policy for the entire 18-nation euro zone, is going beyond its mandate in order to rescue the currency bloc from stagnation. Mr. Weidmann has opposed suggestions that the Frankfurt-based central bank should buy up government bonds and has prodded political leaders to do a better job of reducing government debt and reviving growth.

Mr. Fisher agreed that policymakers need to pick up more of the slack from central banks: “Europe needs structural reform. The United States needs structural reform. Japan really needs structural reform. And that’s up to the politicians we elect,” he said. Up to now, “we’ve been the only life of the party.”

Like Mr. Weidmann, Mr. Fisher has repeatedly dissented from the majority in central bank board meetings. Right now, he fears the Federal Reserve will overshoot by keeping interest rates too low for too long, even as the U.S. economy returns to health.

Mr. Fisher noted that markets are currently expecting the Fed to start raising interest rates in the summer of 2015. “There are some like me that think it will be earlier than the market is discounting,” he said. “My personal view is that it will be earlier than that. But who knows. It’s a committee decision.”

USA and Euro zone-01 (2)

Raising interest rates would mark a watershed moment – a first for the Fed in the aftermath of the 2008 global financial crisis that was sparked by the housing market collapse in the United States. The Fed’s benchmark federal funds rate has been at an historic low of 0.25 percent ever since December 2008.

“From an economic standpoint, we’re healing,” Mr. Fisher said. With unemployment at 5.8 percent, Mr. Fisher said there were “significant numbers” of vacant jobs and increasing signs that people are even quitting jobs because they’re confident they can find work elsewhere. “That is to me the beginning of a sign that wage pressures may start again,” he said.

Mr. Fisher warned that the Fed risks provoking a recession in the United States if it waits too long to act: “If we wait until we get inflation to our level, and we get employment to the level we’re seeking – full employment – and then we tighten … in every instance I know in Federal Reserve history, we’ve brought about a recession,” he said.

The world is watching the Fed’s actions closely: As the U.S. central bank pulls out of financial markets and raises interest rates on banks, other parts of the world that are still suffering from the financial crisis will feel the effects. Major central banks ranging from the ECB to the Bank of Japan are increasingly getting heat from investors looking for somewhere else to get free money as the Fed turns off the spigot.

“Europe needs structural reform. The United States needs structural reform. And that’s up to the politicians we elect.”

Richard Fisher

Europe could feel the brunt. Unlike in the United States, the European Central Bank faces an economy that remains extremely weak. The Frankfurt-based ECB is under pressure to launch the kind of government bond-buying “quantitative easing” program that the Fed launched after the 2008 crisis. For Wall Street, this would help fill the gap in bond-buying that has been left by the Federal Reserve, which ended its own quantitative easing program earlier this month.

Regardless of whether the moment comes at the start or middle of next year, by then it will no longer be Richard Fisher’s decision. The president of the Dallas Fed for the last 10 years, and a voting member of the U.S. central bank’s rotating decision-making board this year, Mr. Fisher will be retiring in April. He doesn’t envy the tough decisions that Fed Chairman Janet Yellin will have to make next year. Nor does he envy the job of the European Central Bank and its president, Mario Draghi.

“I’m very sympathetic to Mr. Draghi and all the ECB governors because they have to deal with all these different governments. We have problems with one government and you have 18 disparate governments in that system … I think that’s a much tougher job than the Federal Reserve,” Mr. Fisher said.

As the Fed moves back toward normalization, Mr. Fisher said that both the communication of the exit and the implementation will be critical. He urged central bankers to worry less about the market reaction and more about the effect on the economy.

“We try to communicate as much as possible. But the real purpose of our work is to do work for the real economy and for the American people, not for the rich boys on Wall Street,” he said.

That kind of attitude might help him with Republicans in the United States, who are threatening to put tougher controls on the central bank’s actions. Fears that the Federal Reserve could lose some of its cherished independence only increased after Republicans last week took control of both houses of the U.S. Congress in a mid-term election. Mr. Fisher warned his conservative friends to tread carefully.

“I advise my Republican friends in the Senate and the House: Be very careful that what you do doesn’t take away the independence of the central bank,” Mr. Fisher said. “I like to remind them – they can’t even pull together a budget, so how do we expect them to run the money supply?”


Christopher Cermak has worked in Washington, covering the U.S. economy and Federal Reserve for various news agencies, and is now an editor for the Handelsblatt Global Edition in Berlin. Astrid Dörner is one of Handelsblatt’s reporters in the United States, reporting about Wall Street, corporate America and the dealings between Washington politicians and bankers. Frank Wiebe is one of Handelsblatt’s reporters in New York and covers the financial sector. To contact the authors: cermak@handelsblatt.com, adoerner@handelsblatt.com and wiebe@handelsblatt.com

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