Dallas Fed President Richard Fisher Concerned by Beer Goggle Economy

Dallas Federal Reserve president Richard Fisher, never one to shy away from colorful metaphors(he recently called bond market traders ‘feral hogs’), caused a stir this week when he quoted well-known analyst Peter Boockvar:

“. . . QE(quantitative easing) puts beer goggles on investors by creating a line of sight where everything looks good . . .”

Fisher, speaking about Fed policy to a room of corporate directors, thought he should explain the beer goggle metaphor further: “this audience might substitute ‘wine’ or ‘martini’ for beer to make it more age appropriate, but the effect is the same: things often look better when one is under the influence of free-flowing liquidity.”

Fisher is adding his voice to the growing chorus of experts who say the Fed’s quantitative easing program, where it buys billions of dollars in bonds each month, is creating dangerous distortions in financial markets and the broader economy. He says the Federal Reserve should pare back its bond buying program as soon as possible, even if doing so sends stocks cascading lower.

“Were a stock market correction to ensue while I have the vote, I would not flinch from supporting continued reductions in the size of our asset purchase program as long as the real economy is growing,” he said.

Fisher’s speech was devoid of the wishy-washy language so common among Fed officials. Calling the rise in asset prices “eye-popping,” he left little ambiguity on what his policy stance will be at upcoming Fed meetings.

“I would vote for continued reductions in our asset purchases, with an eye toward eliminating them at the earliest practicable date,” the straight-talking Texan said. “As soon as feasible, we should change tack. We should stop digging. I plan to cast my votes at FOMC meetings accordingly.”

When Fisher speaks, people listen: this year he again becomes a voting member of the rotating Federal Open Market Committee, one of only five other regional governors able to cast votes on Fed policy. He’s also the only Fed member with real world experience in the financial markets – Fisher worked at a hedge fund for most of the ’80’s and ’90’s.

Economists noted that Fisher is not the first Fed official to invoke booze when referring to Fed-fueled monetary stimulus. William McChesney Martin, the longest-serving Fed chair, famously quipped in 1955 that his job was to “take away the punch bowl just when the party gets going.”

The upcoming Fed meetings should be very interesting indeed. If Fisher is joined by other Federal Reserve hawks, the days of quantitative easing(and monetary beer goggles) are numbered. The question is, how bad will the hangover be?