US Fed vice chair says rate hike likely this year


Wed, Mar 25, 2015 - Page 15

US Federal Reserve Vice Chairman Stanley Fischer on Monday said he expected the central bank to start raising interest rates sometime this year.

Once that happens, though, rates will not likely move in any predictable pattern, he added.

Fischer’s remarks built on a message the Fed sent last week after its latest policy meeting ended. The central bank opened the door to a rate increase by no longer saying it would be “patient” in starting to raise rates.

The Fed has kept its key short-term rate near zero since 2008 to try to bolster the US economy after a devastating financial crisis and recession.

“An increase in the target federal funds range likely will be warranted before the end of the year,” Fischer said in a speech to the Economic Club of New York.

Employers have added 200,000-plus jobs each month for the past year. Unemployment is at a seven-year low of 5.5 percent. However, inflation hovers well below the Fed’s 2 percent target.

Fischer reiterated that the Fed wants to be “reasonably confident that inflation will move back to our 2 percent objective over the medium term.”

He also stressed the importance of looking beyond when the Fed begins raising rates. After its first increase, the Fed may adjust its key rate either up or down, depending on the economy’s performance, the vice chairman said.

A “smooth path upward in the federal funds rate will almost certainly not be realized, because, inevitably, the economy will encounter shocks,” Fischer said. “When shocks happen, as they do, policymakers will have to respond to at least some of them.”

San Francisco Fed President John Williams said a discussion should happen in the middle of the year about tightening policy, even as he lowered his economic growth forecast.

Williams said in remarks prepared for delivery in Sydney yesterday that he expects US real GDP to grow about 2.5 percent this year from a previous forecast of just under 3 percent.

He said he expected an improving economy to push wages and prices up, and inflation to move back toward the Fed’s 2 percent target.

“I think that by mid-year it will be the time to have a discussion about starting to raise rates,” Williams said, altering the phrase from “serious discussion” that he used in a March 5 address in Honolulu.

“I’m not making a prediction about what the Fed will do; I am saying that in my view, it would be appropriate to start weighing the pros and cons of taking action at that time,” he said.

Additional reporting by Bloomberg