Hilsenrath Analysis: Fed’s Fischer Avoids Clear Rate Signals, But Reminds of Tricky Landscape
By JON HILSENRATH
Federal Reserve Vice Chairman Stanley Fischer subtly reminded investors in an interview with Bloomberg News Monday that the central bank faces a tough decision in the weeks ahead as it decides when to raise short-term interest rates. While the economy is close to what the Fed considers full employment, meaning a job market that is nearly fully recovered from the shock of 2007-2009, inflation remains stubbornly below its 2% objective. Full employment calls for higher interest rates while low inflation calls for borrowing costs remaining low. “We are in a situation with very low inflation, nearly full employment, but very low inflation,” he said.
Mr. Fischer wasn’t asked specifically about the rate decision coming up at the Fed’s next policy meeting, Sept. 16-17, but the implication of his comments was clear: It isn’t straightforward. Mr. Fischer appeared to be wrestling with mixed readings on inflation. On the one hand, low headline numbers are in part the result of falling oil and raw materials prices which will eventually run their course. “We are not going to be as low as we are now forever,” he said. The suggestion was that he was prepared to look through current low readings. Moreover his assertion that the U.S. is near full employment implies the economy is near a point that ought to lead to an uptick in consumer prices. On the other hand, he pointed to inflation expectations, which have been drifting down of late, a point the WSJ raised in a newsletter commentary this morning.
That could add to the worry among Fed officials that inflation will stay low longer than desired or expected.
Taken altogether, no obvious signal from Mr. Fischer, but a reminder that the September decision is not yet made.
wsj
