fed interest

US Fed – Fischer forsees gradual interest rate rises

Federal Reserve vice chairman Stanley Fischer on Sunday (Oct 9) predicted modest interest rate increases in the coming years, saying the US economy was nearing full employment.

“Gradual increases in the federal funds rate will likely be sufficient to get monetary policy to a neutral stance over the next few years,” he said in a speech to bankers.

US interest rates are currently between 0.25 and 0.50 per cent, as they have been since last December, and the Fed’s Open Market Committee decided not to raise them at its last meeting in September.

“Our decision was a close call, and leaving the target range for the federal funds rate unchanged did not reflect a lack of confidence in the economy,” Fischer said.

He recalled that Fed members’ median projection was for the federal funds rate to rise gradually to 1.1 per cent by the end of 2017, 1.9 per cent by the end of 2018 and 2.6 per cent to the end of 2019.

“However, as we have noted on many previous occasions, policy is not on a preset course,” Fischer said.

“The economic outlook is inherently uncertain, and our assessment of the appropriate path for the federal funds rate will change in response to changes to the economic outlook and associated risks,” he said.

On the current US economic situation, Fischer said the labour market is solid.

“I see the US economy as close to full employment, with some further improvement expected,” he said.

But he also noted that productivity continues to be a source of concern.

“Indeed, productivity declined a half percent over the most recent four quarters and has increased only about a quarter per cent per year, on average, since 2011,” he said.

“While improving labor market conditions have led to higher household incomes in recent years, the key to improved living standards over the long haul will be a revival in productivity growth – at least to more normal levels, possibly in the range of 1-1/2 per cent per annum.”

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