Fed President Warns of ‘Hotel California’ Scenario

Relax, said the night man
We are programmed to receive.
You can check out any time you like,
But you can never leave.

Federal Reserve Bank of Dallas President Richard Fisher invoked the lyrics of the Eagle’s “Hotel California,” when describing the Federal Reserve’s newest round of quantitative easing during a Dec. 14 interview on CNBC’s “Squawk Box.” Fisher said the as the Fed continues to buy bonds and mortgage-backed securities in order to keep long-term interest rate near zero, it may never be able to exit the program.

Since we’re going to have an engorged balance sheet we may never be able to leave this position,” the reserve bank chief said. “We were at risk of what I call a ‘Hotel California’ monetary policy, going back to the Eagles song which is, you can check out any time you want but you can never leave.

Fisher explained he argued against the newest policy set by the Fed last week as he is concerned the markets will become “overly concerned” with the thresholds.

The Fed announced another round of quantitative easing Dec. 12, stating it will keep interest rates near zero by adding $45 billion in monthly Treasury purchases to its existing program of $40 billion in monthly mortgage-debt purchases until either the US unemployment rate falls below 6.5 percent or inflation exceeds 2.5 percent.

Their efficacy is declining over time,” Fisher said. “With each new announcement there’s less of a reaction.

According to Fisher, the US economy is actually the strongest in the world right now, and is only struggling because of uncertainty surrounding lawmakers’ failure to agree on a new budget that avoids the “fiscal cliff.

We’re the thoroughbred of the global economy,” Fisher said. “Our businesses are better equipped now to compete in the world than ever before. They’ve driven down their costs. They’re hyper-efficient. They’re hyper-productive.