Fed’s Fisher says no-one has confidence in the government but there won’t be a default
The Federal Reserve's Richard Fisher has said that uncertainty over the shutdown of the US federal government has put business in a defensive crouch, as no-one has confidence in the federal government, and that the US is a country in denial.
Shutdown of several functions of the Federal government has now lasted for four days – and it's the first of its kind in 17 years. The political agitation has seen sharp reactions in bond yields (which imply the government's cost of borrowing):
DEFAULT siren watch: US one-month T-bill yields spike to more than 18bp, highest in 4.5 years
— Chris Adams (@chrisadamsmkts) October 4, 2013
The central banker doesn't think we'll see a default though – he says that a default would disturb the entire financial market.
Fisher has said that the decision not to begin tapering of bond-buying in September was a "close call". He is concerned about the long-term risks of a big Federal Reserve balance sheet, but not too worried by short term inflation risks.