Fed vice-chair hints at 2016 rate hike

There may still be a U.S. rate hike in 2016.

“We are close to our targets,” said Federal Reserve vice-chair Stanley Fischer during a speech at the Aspen Institute on Sunday. “Not only that, the behavior of employment has been remarkably resilient.”

Despite many global shocks over the two years, “employment has continued to increase, and the unemployment rate is currently close to most estimates of the natural rate,” he added.

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But Fischer pointed out that monetary policy cannot act alone, especially in an age when so many banks are nearing the zero lower bound. Effective fiscal and regulatory policies, he said, are “the key to boosting productivity growth, and the long-run potential of the economy.”

Those policies could come in the form of “improved public infrastructure, better education, more encouragement for private investment, and more effective regulation.”

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Fed chair Janet Yellen is scheduled to speak August 26 in Jackson Hole, Wyoming, and experts expect her remarks to be similarly optimistic.

“It would be quite an event if Fischer went out so close to Yellen’s speech this week and said something” the Fed Chair disagrees with, Roberto Perli, a partner at Cornerstone Macro LLC and former Fed board economist, told Bloomberg. “While I don’t expect Yellen to provide much rate guidance in Jackson Hole, I think she will echo Fischer’s upbeat assessment of the U.S. economy.”

As of 9 a.m. on August 23, the Fed Fund futures predict an 18% probability of a rate hike in September, 25% in November and 50% in December.

Staff

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