Fed’s Fischer: U.S. Economy Needs Faster Potential Growth

Fed's Fischer: U.S. Economy Needs Faster Potential Growth

The United States requires faster potential economic growth in order to lift the long-run equilibrium interest rate, Federal Reserve Vice Chairman Stanley Fischer said on Thursday.

19 Mayıs 2016 - 17:44

"What we need most, now that we are near full employment and approaching our target inflation rate, is faster potential growth," Fischer, the Fed's second-in-command, told an economics conference in New York.

Fischer did not comment on the likelihood the Fed will raise interest rates again in June. Most Fed officials felt last month that the U.S. economy could be ready for a rate increase at the central bank's June 14-15 meeting, according to April policy meeting minutes released on Wednesday.
Fischer told the conference on Thursday more study should be devoted to finding ways to boost the so-called equilibrium real interest rate, which is the level of borrowing costs associated with stable inflation and full employment.

Assessing the long-run rate is key to Fed policymakers forecasting how high they will ultimately raise interest rates. Lower growth rates for the economy over the long run would require a lower equilibrium federal funds rate.

The Fed raised interest rates last December after keeping them near zero for seven years to help the economy recover from a steep recession.

The Fed is closing in on another hike and the minutes of its last policy meeting signaled policymakers first needed to see signs the U.S. economy was strengthening.

The jobless rate at 5 percent is already near what most economists consider full employment and data including retail sales, housing starts and industrial production painted an upbeat picture of the economy at the start of the second quarter. New jobless claims fell last week, the Labor Department said on Thursday.

Another report showed factory activity contracting in the mid-Atlantic region in May, hurt by the sluggish global economy which has made the Fed more cautious about lifting rates.

Fischer said in March the Fed is not far from meeting its 2 percent inflation target.

The suggestion on Wednesday that a rate increase in June is firmly on the table raised the possibility that the Fed is closer to tightening monetary policy again than Wall Street expects.

Prices for futures contracts on the Fed's benchmark overnight lending rate implied that investors saw a 30 percent chance of a rate increase next month, according to CME Group.

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