The Federal Reserve has room to raise interest rates further but may be getting close to the end of its tightening cycle, Federal Reserve Bank of Dallas President Richard Fisher told CNBC TV Wednesday.
“I think we’ve room to tighten a little bit further,” Fisher said, but, using a baseball analogy, added that the U.S. central bank is in the eighth inning of its tightening cycle and entering the ninth, and usually final, inning this month.
Fisher noted that the Fed had a double mission - to keep inflation at bay and to maintain economic growth. He said interest rates had to get to the point where “we are neither stimulating inflation or discouraging growth.”
“We are not quite there yet. We are getting closer, and as to when we get there, stay tuned,” he said.
Treasury prices rallied, with Fisher’s comments and a weak U.S. manufacturing report pushing the yield on the 10-year note firmly below 4 percent to a fresh 13-month low of around 3.90 percent.
The 10-year bond yielded about 4.7 percent a year ago. Since then, the Fed has raised its benchmark federal funds rate 2 percentage points to 3.00 percent.
Fisher said the puzzling fall in long-term interest rates, despite the Fed’s steady, year-long program of raising short-term rates, reflects the market’s confidence that the Fed will do its job in keeping inflation under control.
Fed Chairman Alan Greenspan has coined this phenomenon a ”conundrum,” but Fisher appeared sanguine, saying he anticipates “less of a conundrum as we go through time.”
On the economy, Fisher said “we’re going fine.”
He played down concerns in financial markets about the country’s wide current account gap. He said the deficit reflected robust U.S. consumption, which was a key factor driving export growth in the rest of the world.
“Where would the world be if Americans did not live out their proclivity to consume everything that looks good, feels good, sounds good, tastes good?” he said.
“We provide a service for the rest of the world. If we were running a current account surplus or trade surplus, what would happen to economic growth worldwide and what would be the economic consequences? So I think we are doing our duty there,” he said.