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Fed talks about future highly theoretically

Staff writer |
The U.S. economy needs to reach a higher rate of so-called potential growth, the central bank's vice-president Stanley Fischer said in a statement.

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Contrary to the hopes of market participants, Fischer did not make any remarks about the immediate outlook for policy.

However, like some of his counterparts on the FOMC recently, his comments hit upon an increasingly important topic, the need for Capitol Hill to do its part in fostering more rapid and stable economic growth.

Fischer's speech was highly theoretical and centred on the difficulties of measuring the so-called output gap in the economy (how far above or below the potential rate of growth the economy was growing).

Likewise, estimates of the natural and long-term interest rates for the economy - different measures of the interest rate that the Fed should aim for - were subject to uncomfortable, but unavoidable, margins of error, Fischer said.

One thing however was very clear, fiscal variables such as infrastructure spending and taxation were important in attaining higher rates of potential growth, Fischer said.

The door is open to an interest rate hike by the U.S. central bank when it meets in mid-June, a top official said.

Speaking at a press briefing on the state of the economy at the Federal Reserve bank of New York its president, William Dudley, said June was "definitely a live" meeting.

However, he reportedly also stated that the monetary authority would not lose credibility if the economic data published by the time of the 14-15 June meeting of the Federal Open Market Committee did not warrant moving on rates.

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