Fmr. Fed Pres. Fisher: ‘I Could See a Correction Taking Place of Substantial Magnitude’

‘What worries me ... is how lazy investors have gotten, totally dependent on the Federal Reserve’

SANTELLI: “If you had to rate the U.S. economy zero to ten, ten being the best, zero being, of course, the least vibrant, where would you peg the U.S. economy at this point in time?”
FISHER: “Well, in relative terms to all of the rest of the world I’d say we’re as close to that upper end of the scale that is broaching ten. We’re number one and if you take NAFTA countries as a whole, United States, Mexico and Canada, this is the epicenter of world growth. That’s why we have a strong dollar. That’s why people re funneling money into the United States. We are a growth economy as someone said earlier in the show and we’re moving forward. We’ve just had a huge tax cut in terms of oil prices. It may do slowdown employment growth here in Texas but it’s good for the rest of the nation, and we’re in a sweet spot right now. Markets are high, interest rates are low, the economy is still growing.”
SANTELLI: “OK. So, the markets are high. OK. Do you think any part of the stock market being high has anything to do with the committee that you just left in terms of being a part of? And if you didn’t grade it on the curve and you graded the U.S. economy based on history maybe considering over six years of zero interest  rate policy, would you still give it a ten?”
FISHER: “Well, Rick, first of all, what the FOMC wanted to accomplish has been accomplished. You remember as well as I do, the market bottomed on March 9th of 2009. It’s tripled since. Cut its trades to zero, started buying bonds injected a lot of liquidity in the economy. What worries me however is how lazy investors have gotten, totally dependent on the Federal Reserve. I find this to be a precarious situation, but all I’m saying is right now in terms of the real economy, we are growing. Others are not growing as well as we are. We are still inventing. We are still innovating. This is a remarkable place, the United States. Are we vulnerable, in my personal opinion, to a significant equity market correction? I do believe we are and the reason for that is: people got lazy. They are dependent solely on the Fed.”
SANTELLI: “But, Richard, if investors are getting lazy —. Listen, if I have a dog that’s hungry and every time I give him a can of food, I ring a bell. We all know that we’re going to condition that dog. Has not the Federal Reserve conditioned investors to be lazy? I mean, who do we point the finger at? You know, if you’ll leave raw meat out and your dog eats it, do we blame the dog or should human behavior be an issue that the committee takes under review a little more closely?”
FISHER: “Look, I've sat through that committee for 10 years. It does take this under review. It had a job to do which was to, of course, patch the economy together to save it. That was Ben Bernanke’s job. Now Janet Yellen job is to engineer the exit and go back to normalization … What worries me is the people that watch the show, in particular big money traders, are just completely dependent on the Fed. Look at the volatility we had the last few days ... So yes, we have, the FOMC has conditioned the markets. I think the markets however have a responsibility to do their own work and to expect that as the economy improves things going to change overtime. The Yellen committee will engineer normalization however long that takes. I think the market should get prepared for it. What I don't like is when market commentators come back and blame the Fed for their own problems. And that's what I worry about. I could see a correction taking place of substantial magnitude. Should the Fed react because that's happening? I don't believe so. I've argued that at the table when I was at the table, because after all, this market is hyper overpriced, in my view, and these interest rates are abnormally low -- engineered by the Fed to be sure -- but that's because nobody else's is doing anything on the fiscal policy side and we had to act. So who you point blame at?”

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