Richard W. Fisher, president and CEO of the Federal Reserve Bank of Dallas, says the current economic crisis was summed up neatly by a woman who complained to her accountants: “This [meltdown] has been like the divorce from hell. My net worth’s been cut in half, but I’m still stuck with my husband!” Addressing a sold-out luncheon today of the World Affairs Council of Dallas-Fort Worth, Fisher (shown here) had a lot to say about the meltdown, some of it surprisingly optimistic. Jump for the details.
With C-SPAN cameras rolling and national financial journalists hanging on his every word, Fisher told a big crowd at the Hotel Crescent Court that economic crises like the current one are nothing new. They’re caused by a mixture of “greed and tomfoolery,” he said, and cited something Washington Irving wrote in 1719 about another downturn brought on by a speculative bubble.
That’s cold comfort to struggling Americans, though, and Fisher said there’s more pain ahead. As companies batten down the hatches–slashing every cost they can–he expects U.S. GDP will contract another annualized 4 to 5 percent in the current quarter, with still more shrinkage at least through next June.
So, what position should stock-market investors assume now, Fisher said? “Somewhere between cash–and fetal.”
To date, he went on, the Fed has tried to avoid the mistakes made by previous central bankers–read: Herbert Hoover’s and, more recently, Japan’s–by priming the money pump, big-time. As of last week, the Federal Reserve’s “total footings” had expanded to $2.25 trillion, nearly three times where it started the year. “We’re duty-bound to apply every tool we can to clean up the mess,” Fisher insisted–and he added that it’s begun to work.
How so? LIBOR rates have come down, for one thing, he said. The Fed’s purchase of GSE (government-sponsored enterprise) mortgage-backed securities has reduced 30-year fixed-rate mortgage rates to record lows. And commercial-paper facilities have begun improving.
“So far, so good,” he said. “Confidence is mending. But we have miles to go before we sleep. And I can’t wait to get a good night’s sleep.”
How long is there to go, exactly? “If all goes well, I expect recovery in the second half of 2009,” Fisher told reporters after his speech. “We’ve gone from irrational exuberance to irrational fear. We’ll balance out.”
