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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Richard Fisher of the Dallas Fed on Uncertainty About Final Demand



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When we talk about economic uncertainty, we tend to mean policy uncertainty, i.e., uncertainty regarding tax rates and public expenditures, etc. Yet Richard Fisher reminds us, per a Michael Derby post at the WSJ, that there is another kind of uncertainty that arguably matters more:

The central banker did not address the monetary policy outlook, but he did say that when it comes to Federal Reserve bond buying “quantitative easing is a necessary but insufficient tool to spark job creation.” He added, “employers will not deploy the cheap and abundant capital on hand toward job creation while there is so much uncertainty surrounding final demand for the goods and services they sell.”

Mr. Fisher, who is not a voting member of the monetary policy setting Federal Open Market Committee, has been a staunch opponent of the Fed’s effort to provide stimulus to spur better rates of growth. He has long argued that regulatory and tax-related uncertainties have been holding back growth and blunting the impact of the stimulus the central bank has been providing. [Emphasis added]

What is odd here is that uncertainty surrounding final demand for goods and services is arguably best addressed by the kind of nominal GDP level target that Mark Carney, governor of the Bank of Canada, has all but endorsed. Regulatory and tax-related uncertainties are undoubtedly important, but maintaining steady nominal GDP growth is arguably the most direct way to address the anxieties of employers that Fisher rightly identifies as a barrier to investment. 



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