Fed’s Fisher: Market Must Take Off “Beer Goggles” Because Powell’s Not Coming To The Rescue

With futures lurching back into the green early Thursday morning following yesterday’s Powell-induced market ructions, former Dallas Fed President Richard Fisher, who has developed a reputation for his blunt talk about ZIRP and its consequences, joined CNBC’s “Squawk Box” for an interview.

His comments Thursday morning echoed his remarks from February 2020, when he proclaimed – just as US stocks were tumbling into correction territory at the fastest pace since the Great Depression – that Fed rate cuts wouldn’t do anything to improve corporate access to credit that markets weren’t doing on their own already. Instead, the longtime Fed insider declared that it’s long past time for the Fed to try and wean markets off of what he termed “Fed largess”.

“…the market is getting ahead of itself, because the market is dependent on Fed largess… and we made it that way…

…but we have to consider, through a statement rather than an action, that we must wean the market off its dependency on a Fed put.“

Speaking Thursday, Fisher joked that markets have been wearing “beer goggles for years” thanks to ZIRP and QE. However, Fisher offered a vote of confidence in the Fed’s ability to defy markets that was almost surprising: although it hasn’t been removed entirely, the “Fed put” has seen its “strike price move dramatically”.

“Let’s face it Joe, I want to come back to the alcohol metaphor we started with, the market has been wearing beer goggles for the longest possible time…and they just assume the Fed’s going to bail them out. I think the strike price on the Fed put has moved significantly…and unless we have a dramatic turn in the markets that indicates it can infect the real economy, I don’t believe – under this chair in particular who has a credit market background – that they will be weak in following through on what they pronounced.”

Perhaps the forcefulness of that response was a result of the goading by CNBC’s Joe Kernan, who implied that the Fed has had “feet of clay”, meaning no resolve to stand behind its prescribed policy course when markets react.

If Fisher is correct, however, that would be bad news for the generation of Wall Street traders who still have never faced a drawn-out bear market in equities (just swift and vicious bear-market corrections like we saw in February and March 2020). If the Fed truly is intent on abandoning the “Fed put”, then two-way volatility might finally become a more regular feature in equity markets.

Back in February 2020, the former Dallas Fed chief offered some more thoughts about Wall Street’s ‘lost generation’.

“The Fed has created this dependency and there’s an entire generation of money-managers who weren’t around in ’74, ’87, the end of the ’90s, and even 2007-2009.. and have only seen a one-way street… of course they’re nervous.”

“The question is – do you want to feed that hunger? Keep applying that opioid of cheap and abundant money?”

Readers can watch the clip below:

“The market has been wearing beer goggles for the longest possible time. Everything looks beautiful because money was free. They just assume the Fed is going to bail them out. The strike price on the Fed put has moved significantly,” says Richard Fisher. pic.twitter.com/VgPUzGQaB8

— Squawk Box (@SquawkCNBC) January 27, 2022