The actions taken by the Federal Reserve in the financial crisis were effective in preventing the economy from falling into a depression, Dallas Federal Reserve Bank President Richard Fisher said Thursday.
Speaking before the Washington Association of Money Managers, Fisher also predicted that it will be a "slow slog" to economic recovery, although inflation should not be a concern for some time.
Fisher said in prepared remarks that he and Fed colleagues were faced with a "total breakdown of the financial system," and their actions succeeded in preventing the economy from falling into a deep depression.
There are some "encouraging signs," including a moderation in the rate of decline shown in manufacturing surveys from Kansas City, Philadelphia, Richmond and Dallas Feds, a leveling off in retail sales, and a less pessimistic consumer base, Fisher noted.
"But, to be sure, we are not out of the woods," he said, reiterating the cautious optimism exuded in past speeches. "We have miles to go before we sleep."
Fisher reiterated his forecast for a slow recover, not a V-shaped or a U-shaped, but rather a "very slow slog" towards the resumption of healthy growth.
"I would be delighted, but surprised, if meaningful sustained growth gets under way before the end of the year," he predicted.
Unemployment is likely to rise above 10 percent, Fisher said, before it peaks and begins to reverse course.
On the price stability front, noted inflation hawk fisher predicted that inflation will remain meek until a strong economic recovery is underway.
"It is doubtful that inflation will raise its ugly head until employment and capacity utilization tighten," he predicted.
However, looking forward Fisher urged monetary policymakers to be "especially sensitive" to concerns about the expansion of the Fed's balance sheets, especially in an era of extraordinarily high government deficits.
"We have been very careful to calibrate our actions so as to accommodate the needs of credit markets and the economy?not political imperatives," Fisher said.
While the dramatic expansion of the Fed's balance sheet has "raised a few eyebrows," and the FOMC's purchase of $300 billion in U.S. treasuries has been "viewed by some as skating a little too close to the edge of political accommodation," Fisher assured the audience that the Fed is fully prepared to unload its balance sheet at the appropriate time.
"Your central bank has worked hard to pull the economy back from the abyss," he said, adding that the FOMC took risks in order to do so. Although there has been some error, Fisher expressed his confidence in the Fed, stating that "for the most part, I think we have gotten it right."