Dallas Federal Reserve President Richard Fisher warned on Monday against "Buy America" provisions in a proposed fiscal stimulus law and said it could lead to devastating trade protectionism.
"Let me just be blunt. Protectionism is the crack cocaine of economics. It may provide a high. It's addictive and it leads to economic death," Fisher told C-Span television in an interview for its Washington Journal programme.
President Barack Obama seeks an $825 billion (Dh3bn) stimulus plan to end the country's year-long recession. US lawmakers are debating rules that will insist that public money is spent on US-made products, although the White House has already said it will review any Buy America provisions.
"We just cannot afford to go down that path and I hope our senators, Democrats and Republicans, will be very sensible on that front," said Fisher, who is not a voting member of the Fed's policy-setting committee this year.
Fisher also urged Congress to balance the immediate need to stimulate growth with the long-term consequences of piling on debt that could be a drag for years to come.
"Our job is to maintain price stability while we engender the growth and employment of the United States. It is a very difficult balancing act, but it can only be done if it is buttressed by sensible fiscal policy," Fisher said.
The Fed has used unorthodox steps to thaw credit markets and encourage borrowing and consumption. It has cut interest rates almost to zero and has pumped hundreds of billions of dollars into the financial system, more than doubling its balance sheet in the process, to almost $2 trillion.
Fisher said he supported the Fed's aggressive action but stressed it was crucial that the US central bank have an exit strategy to prevent this massive build-up in liquidity from fuelling inflation once US growth recovers.
"Right now the pressures are not on the inflationary side; they're on the other side. Longer term, we have to be aware of the fact that we could have, as a result of all these initiatives we've taken... baked-in inflationary pressures.
"We're very mindful of that and our exit strategy has to work with the fact that we cannot allow inflationary pressures to also take root. This is our job," Fisher said.
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