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Comments to the Harvard Club
of New York City on Monetary Policy
(With Reference to Tommy Tune, Nicole Parent,
the FOMC, Velcro, Drunken Sailors and Congress)

Remarks before the Harvard Club of New York City

Richard W. Fisher
President and CEO
Federal Reserve Bank of Dallas

New York, N.Y.
September 19, 2012

The views expressed are my own and do not necessarily reflect official positions of the Federal Reserve System.

Comments to the Harvard Club of New York City on Monetary Policy
(With Reference to Tommy Tune, Nicole Parent, the FOMC,
Velcro, Drunken Sailors and Congress)

Richard W. Fisher
Thank you, Nicole [Parent]. And thanks to the Harvard Club of New York for including me in
your speaker series. It is quite something to see one’s picture on the cover of the Harvard Club of
New York Bulletin wedged between that of Tommy Tune and Nina Khrushcheva, Nikita
Khrushchev’s great-granddaughter.
My wife Nancy and I celebrated our 39th anniversary on Sept. 8. Knowing that she has seen and
loved everything our fellow Texan Tommy Tune has ever done on the musical stage, and having
grown up with the image of Nikita Khrushchev as First Secretary of the Communist Party of the
Soviet Union banging his shoe on the podium of the United Nations and saying, “We will bury
you!” I thought I would impress her that evening by showing her the Bulletin. “In your wildest
dreams,” I asked her, “did you ever think that the skinny, long-haired boy you married 39 years
ago would be headlining a speaker series alongside Tommy Tune and Nikita Khrushchev’s
great-granddaughter?” Her answer was classic: “Richard, we have been married for four decades.
I hate to disappoint you sweetheart, but you don’t appear in my wildest dreams.”
A Word About Nicole Parent
I am here to speak to you about monetary policy. But before I start, I am going to take advantage
of your undivided attention to announce to all assembled here tonight that the former president of
this club and my fellow Harvard Overseer, Nicole Parent, is engaged to be married. Nicole, may
your marriage last at least 39 years and may you be blessed with the wildest of dreams and the
best of life.
A Different Perspective
In addition to the Algonquin, there are two iconic buildings on this side of West 44th Street. One
is the New York Yacht Club; the other is the Harvard Club. I mention this because the close
proximity of these two buildings suggests something of a biographical metaphor. I spent four
years at a Naval Academy prep school before becoming a midshipman in 1967 at Annapolis,
where I majored in engineering and learned the craft of seamanship and naval warfare. Then, in
1969, Harvard kindly recruited me in as a transfer student. Two years later, I graduated with a
degree in economics.
In thinking through many of the policy issues that confront me as a member of the Federal Open
Market Committee (FOMC), I tend to combine both backgrounds, as well as an orientation
framed by having an MBA and spending a significant portion of my career as a banker and
market operator. My perspective is thus framed from the viewpoint of an engineer, an MBA and
a former market operator—not as a PhD economist. For most economic theoreticians, hundreds
of billions, or even trillions, of dollars are inputs into a dynamic stochastic general equilibrium
model and other econometric equations. To a banker, businessperson or market operator, these
are real dollars that have to be thought of within the framework of a transmission mechanism that
needs to get the money from its origin at the Fed into the real economy with maximum efficacy.
My focus tends toward the practicable—how to harness theory to devise a workable solution to

the problems that confront a central banker. There are many superb PhD theorists among the 19
members of the FOMC and support staff. There are only a handful of us—four, to be exact—
who have worked as bankers or in the financial markets.
Tonight, I am going to provide my take on the FOMC’s most recent decision to embark on a new
round of quantitative easing focused on mortgage-backed securities (MBS). Given my
background, and the fact that the Navy is once again welcome back in Harvard Yard, I’ll ask
your forbearance if I use some seafaring references.1
As the book kindly cited by Nicole says, I am given to providing the “straight skinny.”2 I am a
Texan. I speak bluntly and directly. I am not given to circumlocution, and I checked diplomacy
at the door when I gave up my post as an ambassador and trade negotiator. Please don’t take
offense and please bear in mind that my comments this evening are mine alone; I do not claim to
speak for anybody else in the Federal Reserve System.
I shall start my remarks with what I argued at last week’s FOMC meeting, then finish with some
comments on the outcome of that meeting and what needs to be done next.
The Recent FOMC Meeting
It will come as no surprise to those who know me that I did not argue in favor of additional
monetary accommodation during our meetings last week. I have repeatedly made it clear, in
internal FOMC deliberations and in public speeches, that I believe that with each program we
undertake to venture further in that direction, we are sailing deeper into uncharted waters. We are
blessed at the Fed with sophisticated econometric models and superb analysts. We can easily
conjure up plausible theories as to what we will do when it comes to our next tack or eventually
reversing course. 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.
This much we do know: Our engine room is already flush with $1.6 trillion in excess private
bank reserves owned by the banking sector and held by the 12 Federal Reserve Banks. Trillions
more are sitting on the sidelines in corporate coffers. On top of all that, a significant amount of
underemployed cash—or fuel for investment—is burning a hole in the pockets of money market
funds and other nondepository financial operators. This begs the question: Why would the Fed
provision to shovel billions in additional liquidity into the economy’s boiler when so much is
presently lying fallow?
Great battles at sea are fought with modern analytical tools and the most sophisticated IT and
advanced weaponry available. Fleet commanders, like central bankers, use every bit of the
intelligence, technology and theory at their command. But ultimately, just as with great
engagements at sea, the decisive factor is judgment. In forming their judgments, fleet
commanders rely upon briefings from their senior officer corps on the elements, on the
conditions at hand and on their tactical and strategic recommendations before deciding on the
proper course of action.

As you all know, the Federal Reserve’s mission is mandated by the Congress. It calls for us to
steer a monetary course according to a dual mandate—we are charged with maintaining price
stability while conducting policy so as to best assist in achieving full employment. Most all of
the FOMC members—the senior officer corps of the Federal Reserve fleet—have surveyed the
horizon from their different watch stations and agree that inflation is not an immediately
foreseeable threat. Over the past week, however, there has been a noticeable increase in the
longer-term inflation expectations inferred from bond yields. These inferences can be volatile
and are not always reliable, but a sustained increase would suggest incipient doubts about our
commitment to the Bernanke Doctrine of sailing on a course consistent with 2 percent long-term
inflation. I believe that even the slightest deviation from this course could induce some
debilitating mal de mer in the markets.
Charting a Course to Full Employment with Businesses at ‘Sixes and Sevens’
In the current tumultuous economic sea, facing strong headwinds common in the aftermath of
financial crises and balance-sheet recessions, our desired port is increased employment. Certain
theories and various hypothetical studies and models tell us that flooding the markets with
copious amounts of cheap, plentiful liquidity will lift final demand, both through the “wealth
effect” channel and by directly stimulating businesses to expand and hire. And yet from the
perspective of my watch station—as I have reported time and again—the very people we wish to
stoke consumption and final demand by creating jobs and expanding business fixed investment
are not responding to our policy initiatives as well as theory might suggest.
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.3 This is not terribly difficult to understand: If you are a small business,
especially, and not only if you operate as an S corporation or as a limited liability company, you
are stymied by not knowing what your tax rate will be in future years, or how you should cost
out the social overhead of your employees or how you should budget for the proliferation of
regulations flowing from Washington.
With regard to business fixed investment and job-creating capital expenditures (capex), the math
is pretty straightforward: Big businesses dominate that theater. Most all of these businesses have
abundant cash reserves or access to money, many at negative real interest rates. I have repeatedly
reported to the committee that the CEOs I personally survey will simply not be motivated by
further interest rate cuts to invest domestically—beyond their maintenance needs—in jobcreating capex. In preparing for this last FOMC meeting, I specifically asked my corporate
interlocutors the following question: “If your costs of borrowing were to decrease by 25 or more
basis points, would this induce you to spend more on job-creating expansion?” The answer from
nine out of 10 was “No.”
The responses of those I surveyed are best summarized by the comments of one of the most
highly respected CEOs in the country: “We are in ‘stall mode,’ stuck like Velcro, until the fog of
uncertainty surrounding fiscal policy and the debacle in Europe lifts. In the meantime, anything
further monetary accommodation induces in the form of cheaper capital will go to buying back

our stock.” This is not an insignificant sounding, coming as it did from the CEO of a company
that has the capacity to spend upward of $15 billion on capex.
To be sure, buying in stock will have a positive wealth effect on that company’s shareholders,
but putting the equivalent amount of money to work in spending on plant and equipment would
put more people back to work more quickly.
Another CEO of a large corporation provided me with an additional source of uncertainty. In this
CEO’s words, China “may be transitioning toward becoming the caboose of the global economy
rather than its engine.” This may be a tad bit hyperbolic, but it indicates there is growing
uncertainty about the great emerging economy that was once considered an eternal fountain of
future demand.
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.
The Duke University Survey
My assessment of the efficacy of further monetary accommodation in encouraging job-creating
investment among operating businesses was recently confirmed by a more rigorous analysis in
the Global Business Outlook Survey of chief financial officers by the Fuqua School of Business
at Duke University—the Harvard of the South—in September.4
Of the 887 CFOs surveyed, only 129, or 14.5 percent, listed “credit markets/interest rates”
among the top three concerns facing their corporations. In contrast, 43 percent listed consumer
demand and 41 percent cited federal government policies. Ranking third on their list was price
pressures from competitors (thus affirming most hawks’ sense that inflationary pressure is
presently sedentary); fourth was global financial instability. The analysts at Duke summarized
their findings as follows: “CFOs believe that a monetary action would not be particularly
effective. Ninety-one percent of firms say that they would not change their investment plans
even if interest rates dropped by 1 percent, and 84 percent say that they would not change
investment plans if interest rates dropped by 2 percent.”
Citing the Evidence of the Unsophisticated and the Sophisticates Alike
Citing these observations, I suggested last week that the committee might consider the efficacy
of further monetary accommodation. When I raised this point inside the Fed and in public
speeches, some suggested that perhaps my corporate contacts were “not sophisticated” in the
workings of monetary policy and could not see the whole picture from their vantage point. True.
But final demand does not spring from thin air. “Sophisticated” or not, these business operators
are the target of our policy initiatives: You cannot have consumption and growth in final demand
without income growth; you cannot grow income without job creation; you cannot create jobs
unless those who have the capacity to hire people—private sector employers—go out and hire.
In the period between the August FOMC meeting and the meeting last week, some very
prominent academic and policy sophisticates also questioned the efficacy of large-scale asset
purchases. Among them were Michael Woodford of Columbia University—a former colleague
of Ben Bernanke’s when they were at Princeton—and Bill White of the Organization for

Economic Cooperation and Development and formerly of the Bank for International Settlements,
and others.
Like me, Professor Woodford argues that the economy would not benefit from additional
liquidity. Like me, he argues that large-scale asset purchases and maturity-extension programs
like Operation Twist are unlikely to appreciably stimulate private borrowing activity through
portfolio-balance or term-premium effects.5 And as for Bill White—a globally respected
economist who stood up to convention and predicted in 2003 that policies being pursued at the
time would engender the financial crisis of 2008–09—here is what he wrote in a particularly
thought-provoking paper a week before the Fed’s annual symposium last month at Jackson Hole,
“In this paper, an attempt is made to evaluate the desirability of ultra easy monetary policy by
weighing up the balance of the desirable short run effects and the undesirable longer run
effects—the unintended consequences … It is suggested that there are grounds to believe that
monetary stimulus operating through traditional (‘flow’) channels might now be less effective in
stimulating aggregate demand than is commonly asserted … It is further contended that
cumulative (‘stock’) effects provide negative feedback mechanisms that also weaken growth
over time … In the face of such ‘stock’ effects, stimulative policies that have worked in the past
eventually lose their effectiveness.
“It is also argued … that, over time, easy monetary policies threaten the health of financial
institutions and the functioning of financial markets, which are increasingly intertwined. This
provides another negative feedback loop to threaten growth. Further, such policies threaten the
‘independence’ of central banks, and can encourage imprudent behavior on the part of
governments. In effect, easy monetary policies can lead to moral hazard on a grand scale.
Further, once on such a path, ‘exit’ becomes extremely difficult. Finally, easy monetary policy
also has distributional effects, favoring debtors over creditors and the senior management of
banks in particular. None of these ‘unintended consequences’ could be remotely described as
I do not necessarily agree with all of either Woodford’s or White’s arguments, but in light of my
soundings of unsophisticates and sophisticates alike, I felt an urge at the meeting last week to tie
the chairman to the mast, Odyssean-style, and to stuff wax in the ears of my fellow committee
members, in order to resist the Siren call of further large-scale asset purchases.
But I have no such powers. I am only one officer in the loyal crew that sails under the command
of Admiral Bernanke. My reports were given a fair hearing. But neither they, nor the arguments
of others who questioned the need to provide further accommodation, carried the day, and a
decision was made.
Having weighed the various tactical and strategic arguments of his officer corps, our helmsman
decided to call down to the engine room and request that more coal be shoveled into the
economy’s boilers. It was decided that further accommodation would be required in the form of
mortgage-backed securities purchases of $40 billion per month and that Operation Twist and the
reinvestment of principal payments from our current holdings of agency debt and MBS would be
maintained: A total of $85 billion a month in additional accommodation would be added to the
system at least through the end of the year. For added measure, the committee announced that if

the outlook for employment does not improve “substantially,” it “will continue its purchases of
agency mortgage-backed securities, undertake additional asset purchases, and employ its other
policy tools as appropriate until such improvement is achieved.” As it always does, the FOMC
noted that it will “take appropriate account of the likely efficacy and costs of such purchases.”7
A Fair Assessment and a Prayer
Even though I am skeptical about the efficacy of large-scale asset purchases, I understand the
logic of concentrating on MBS. The program could help offset some of the drag from higher
government-sponsored entities’ fees that have been recently levied, will likely lower the spreads
between MBS and Treasuries and should put further juice behind the housing market—one of
three durable-goods sectors that is assisting the recovery and yet is operating well below longrun potential (the other two sectors are aircraft and automobiles). The general effects of inducing
more refinancing may aid housing and households in other ways. Lower mortgage rates could
help improve the discretionary spending power of some homeowners. Underwater homeowners
might have added incentive to continue meeting mortgage payments, spurring demand and
preventing underwater mortgages from sinking the emerging housing recovery. Of course, much
depends on the transmission mechanism for mortgages, as my colleague Bill Dudley spoke about
Despite my doubts about its efficacy, I pray this latest initiative will work. Since the
announcement, interest rates on 30-year mortgage commitments have fallen about one-quarter
percentage point—about what I had expected—so, so far, so good.
Our Dysfunctional Congress and Drunken Sailors
I would point out to those who reacted with some invective to the committee’s decision,
especially those from political corners, that it was the Congress that gave the Fed its dual
mandate. That very same Congress is doing nothing to motivate business to expand and put
people back to work. Our operating charter calls for us to conduct policy aimed at achieving full
employment in addition to preserving price stability. A future Congress might restrict us to a
single mandate—like other central banks in the world operate under—focused solely on price
stability. But unless or until that is done, we have to deliver on what the American people, as
conveyed by their elected representatives, expect of us.
One of the most important lessons learned during the economic recovery is that there is a limit to
what monetary policy alone can achieve. The responsibility for stimulating economic growth
must be shared with fiscal policy. Ironically, and sadly, Congress is doing nothing to incent job
creators to use the copious liquidity the Federal Reserve has provided. Indeed, it is doing
everything to discourage job creation. Small wonder that the respondents to my own inquires
and the NFIB and Duke University surveys are in “stall” or “Velcro” mode.
The FOMC is doing everything it can to encourage the U.S. economy to steam forward. When
we meet, we consider views that range from the most cautious perspectives on policy, such as
my own, to the more accommodative recommendations of the well-known “doves” on the
committee. We debate our different perspectives in the best tradition of civil discourse. Then,
having vetted all points of view, we make a decision and act. If only the fiscal authorities could
do the same! Instead, they fight, bicker and do nothing but sail about aimlessly, debauching the
nation’s income statement and balance sheet with spending programs they never figure out how
to finance.

I am tempted to draw upon the hackneyed comparison that likens our dissolute Congress to
drunken sailors. But patriots among you might take umbrage, noting that a comparison with
Congress in this case might be deemed an insult to drunken sailors.
The Plea of the Navy Hymn and ‘Illegitimum Non Carborundum’
If you want to save our nation from financial disaster, may I suggest that rather than blame the
Fed for being hyperactive, you devote your energy to getting our nation’s fiscal authorities to do
their job.
Since 1879, every chapel service at the Naval Academy concludes with a hymn that contains the
following plea: “O hear us when we cry for Thee, for those in peril on the sea.” We cry for a
nation that is in peril on the blustery seas of the economy. Our people are drowning in
unemployment; our government is drowning in debt. You—the citizens and voters sitting in this
room and elsewhere—are ultimately in command of the fleet that sails under the flag of the
United States Congress. Demand that it performs its duty.
Just recently, in a hearing before the Senate, your senator and my Harvard classmate, Chuck
Schumer, told Chairman Bernanke, “You are the only game in town.” I thought the chairman
showed admirable restraint in his response. I would have immediately answered, “No, senator,
you and your colleagues are the only game in town. For you and your colleagues, Democrat and
Republican alike, have encumbered our nation with debt, sold our children down the river and
sorely failed our nation. Sober up. Get your act together. Illegitimum non carborundum; get on
with it. Sacrifice your political ambition for the good of our country—for the good of our
children and grandchildren. For unless you do so, all the monetary policy accommodation the
Federal Reserve can muster will be for naught.”
But, then again, I am not Ben Bernanke. And I imagine that after listening to me this evening,
you might be grateful I am not.
Now, in the great tradition of central banking, I will do my utmost to provide you with the
“straight skinny” and avoid answering any questions you might have.
Thank you.

On March 4, 2011, President Drew Faust announced that the Navy Reserve Officers’ Training Corps would return
to Harvard University after a 40-year absence. For more, see “ROTC Returns to Harvard,” by Jennifer Levitz, Wall
Street Journal, Sept. 11, 2012.
See Texas Got It Right! by Sam and Andrew Wyly, New York: Melcher Media, October 2012.
See Small Business Economic Trends survey, National Federation of Independent Business, September 2012,


For Small Businesses:
Most important problem small businesses face, %, 6-month moving avg.
Poor sales


Gov't regulation














NOTE: Grey shaded area indicates recession.
SOURCE: National Federation of Independent Business.


See Duke University/CFO Magazine Global Business Outlook Survey, Duke University’s Fuqua School of
See “Methods of Policy Accommodation at the Interest-Rate Lower Bound,” by Michael Woodford, Columbia
University, August 2012.
See “Ultra Easy Monetary Policy and the Law of Unintended Consequences,” by William R. White, Federal
Reserve Bank of Dallas Globalization and Monetary Policy Institute Working Paper no. 126,
See the Federal Open Market Committee statement, Sept. 13, 2012,