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Fed's Fischer: Little risk of falling behind the curve

Staff Writer |
The Fed vice-president Stanley Fischer described the decision to stay put in September as "a close call".

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In remarks prepared for a speech at the Group of Thirty International Banking Seminar in Washington DC, Fischer also said there was "little risk of falling behind the curve" in terms of policy tightening, echoing some of the more patient voices at the monetary authority.

"...the neutral nominal federal funds rate - that is, the interest rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel - is currently low by historical standards.

"With the federal funds rate modestly below the neutral rate, the current stance of monetary policy should be viewed as modestly accommodative, which is appropriate to foster further progress toward our objectives.

"But since monetary policy is only modestly accommodative, there appears little risk of falling behind the curve in the near future, and gradual increases in the federal funds rate will likely be sufficient to get monetary policy to a neutral stance over the next few years," Fischer said on 9 October.

In that regard, he specifically referenced the median projection submitted by Federal Reserve board members and Fed presidents on 21 September, which called for an end-2017 Fed funds rate of 1.1%, versus the current range then between 0.25% to 0.50%.

He was explaining that the decision not to raise rates at their last policy meeing did not reflect a lack of confidence in the economic outlook, but rather a preference for collecting "further evidence" of continued progress towards their objectives.

Fischer also described the September jobs report, released on October 7, as "solid", describing the recent move higher in the labour force participation rate as a "welcome development", albeit within a declining longer-run trend.

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