Fed may hike rate by end-2015 - if US economy gets better
Fed vice-chairman Stanley Fischer at a panel discussion during the IMF and World Bank Group Annual Meetings in Washington, DC.
Washington - Fed officials last month opted to leave their benchmark interest rate near zero, where it's been for nearly a decade.
Federal Reserve vice-chairman Stanley Fischer said the US economy may be strong enough to merit an interest-rate increase by year end, while cautioning that officials are monitoring slower domestic job growth and international developments in deciding the precise timing of liftoff.
At the Federal Open Market Committee's meeting in September, "most participants, myself included, anticipated that achieving these conditions would entail an initial increase in the federal funds rate later this year," Fischer said Sunday in Lima, where he is attending the annual meeting of the International Monetary Fund.
"Of course, that assessment was premised on the assumption of continued solid economic growth and further improvement in the labor market, which are key factors supporting our expectation that inflation will rise to our two per cent objective," he said in prepared remarks released by the Fed. The US unemployment rate, which currently sits at 5.1 per cent, doesn't fully capture "additional forms of slack in the labour market", Fischer said. He noted the labour-force participation rate remains below trend, and an unusually large number of people who want full-time jobs are working part time.
While the last two payroll reports have been "disappointing", the job market's prospects for further improvement "look good overall," he said. Fischer, 71, said he anticipates that inflation will likely move back toward the Fed's two-per cent target "as the transitory effects of oil prices and the dollar fade".
Fed officials last month opted to leave their benchmark interest rate near zero, where it's been for nearly a decade. Minutes of the September 16-17 FOMC meeting, released on Thursday in Washington, showed policy makers felt China's slowdown raised risks to their outlook for growth and inflation in the US.
Fischer said the focus in recent FOMC statements on foreign developments is natural, given the "increasing influence of foreign economic developments on the United States economy, both through imports and exports, and through capital account developments".
"Nonetheless, we do not currently anticipate that the effects of these recent developments on the US economy will prove to be large enough to have a significant effect on the path for policy," he said.
The minutes, along with a disappointing employment report for September, weakened confidence among economists and investors that the Fed will raise rates this year.