Fed’s Fisher worried about U.S. debt

The Federal Reserve has become much more transparent in recent years, telegraphing changes in policy ahead of time so as not to surprise financial markets.

Many times, we’ve detected an upcoming policy shift from a speech by one of the many regional Fed presidents.

Dallas Fed President Richard Fisher may not be the one who throw the market a bone or two when it comes to a change in monetary policy, but he shoots straight from the hip and doesn’t mix words.  And his latest remarks before an audience in Germany did not disappoint.

Considered to be one of the most hawkish members of the Fed, Fisher pointed out, "If we continue down on the path on which the fiscal authorities put us, we will become insolvent. The question is when."

Ben Bernanke has more or less said the same thing, but has been much more diplomatic and sensitive in his approach so as not to rock financial markets.

With total federal debt approaching 100% of GDP, Fisher’s blunt talk should not be ignored.  The Republicans in the House of Representatives have debated cuts of over $60 billion, but unless meaningful entitlement reforms are passed (and thus far most politicians have quietly tiptoed around such talk), any significant debt reduction will remain out of reach.

In the meantime, Fisher is unlikely to support any additional moves by the Fed to stimulate the economy.

He said the economy is growing by itself and added, “The Fed has done enough, if not too much, and we should do no more. In my opinion no further accommodation is necessary after June.”

It’s not yet clear how the massive earthquake that hit Japan will affect the U.S. recovery, and turmoil in the Middle East continues to prop up the price of crude.

However, outside of oil, energy prices are stable and judging from the recent rebound in stock prices, the financial markets appear to be taking the upward move in crude and the tragedy that is affecting the world’s third-largest economy in stride.