One of the participants at the dinner had also been present at the Federal Reserve’s annual symposium in August at Jackson Hole, Wyoming. Mole reported that Bernanke was now wildly unpopular with his central bank colleagues, especially those from the emerging markets. These central bankers perceive the Fed’s infatuation with indefinite QE as a recipe for disaster. A weaker dollar means stronger emerging market currencies, which in turn makes exports more expensive. A weaker dollar also increases the price of key commodities such as oil and grains, and this makes for a febrile political environment as the poor suffer more.
I reflected on this anecdote when I read a fascinating speech that Richard Fisher, the hawkish president of the Federal Reserve Bank of Dallas, made at the Harvard Club in Manhattan on September 19. Fisher gave his perspective on the FOMC’s recent decision to embark on a new round of quantitative easing focused on mortgage-backed securities. The speech is brilliant but trenchant. Early on Fisher throws down the gauntlet: "I believe that with each programme we undertake... we are sailing deeper into uncharted waters... Nobody on the committee, nor on our staffs at the boards of governors and the 12 banks, really knows what is holding back the economy.