FED Fisher’s comments embody all that’s wrong with the FOMC

Fisher headlines:

DJ Fed’s Fisher: Continued QE2 Buying Creating ‘Significant Risks’

The risks they envision do not exist.

DJ Fisher: Possible Fed Should Stop Short On QE2 Buying Goal

This would be the case only if they thought mortgage rates should be higher than otherwise.

DJ Fisher: Absolutely Opposed To Expanding QE2 Beyond Current Plan

Only if he is concerned mortgage rates are too low.

DJ Fisher: Firms May Soon Pass On Input Price Increases

This is about what’s called cost push inflation, vs demand pull inflation, and represents shifts in relative value.

DJ Fisher: See ‘Unpleasant’ Inflation Data On Horizon
DJ Fisher: More Fed Liquidity May Exacerbate Inflation Problem

What he calls inflation is not a function of what he calls Fed liquidity.

*DJ Fisher: See Signs Fed Bond Buying Creating Market Imbalances

Fed bond buying can cause financial market alterations but not imbalances.
There could in theory be real imbalances, for example a Fed induced housing shortage due to too low mortgage rates, but this is not the point he’s making.

DJ Fisher: US Government Must Get Fiscal House In Order

Here’s the big one. The FOMC seems to be on complete agreement that there is at least a long term deficit problem

They don’t seem to understand it’s about aggregate demand and not finance per se.

*DJ Fisher: Failure To Fix Deficit May Wound Economy’s Prospects

The make these kinds of statements without identifying the specific channels from deficit spending to the economy’s prospects. Nor are they ever questioned on this and pressed to identify said channels.
(The only one I’ve heard is the interest rate channel which always fails the test of close examination.)

This rhetoric from the FOMC is supportive of the position of both sides of the debate that the federal deficit is an immediate problem, with fears that the US could be the next Greece as proclaimed by Congressman Ryan appearing daily in the popular media, which elevates the real risk of proactive deficit reduction that could undermine the current modest levels of GDP growth and employment growth.

U.S. Consumer Spending/Credit

This is a good sign top line growth was continuing it’s modest growth in March.

Federal deficit spending continues to work to add the income and savings that allows consumers to both reduce their credit card debt and expand their consumption.

Deficit spending continues to be sufficient to support the modest GDP growth and employment growth we’ve been experiencing.

However, the risks remain as discussed at year end:

US deficit reduction efforts, with both sides agreeing that the deficit is THE problem, with some of the proposed cuts more than sufficient to trigger negative GDP growth and rising unemployment.

China’s fight against inflation leading to a hard landing.

UK and euro zone austerity measures passing the tipping point where further austerity measures slow growth sufficiently to increase national govt deficits.

Saudi crude oil price hikes both slowing world demand and triggering anti inflation responses that remove demand.

Additionally, world growth should slow by an unknown amount due to supply disruptions form the earthquake in Japan.

Consumers borrow more for student loans, new cars

April 7 (AP) — U.S. consumers borrowed more money in February to buy new cars and attend school, but they cut back on using their credit cards to make purchases. Borrowing increased by $7.6 billion, or 3.8 percent, in February. It was the fifth consecutive monthly gain. The category that includes car loans and student loans increased 7.7 percent. Borrowing in the category that covers credit cards fell 4.1 percent. That has risen only once in the more than two years since the 2008 financial crisis peaked. The gains pushed total borrowing up to a seasonally adjusted annual rate of $2.42 trillion in February. That’s 1 percent from the three-year low hit in September.