Full employment is nearly within reach, but low inflation means it’s not yet time for the central bank to raise interest rates, Federal Reserve vice chairman Stanley Fischer said Monday morning.
“We’re in a situation with very low inflation, nearly full employment, but very low inflation,” Fischer said in an appearance on Bloomberg TV.
“We’re not going to be as low as we are now forever, and we need to be looking ahead as we go,” he added. “Having said that, the data have to drive us and we have to ask ourselves where are we.”
Inflation was just 0.3 percent in June, in the measure most closely watched by the Fed, well below the Fed’s longer-term 2 percent goal.
Some of the gap is due to factors that are likely to recede as the year goes on, Fischer said, such as the steep drop in the price of oil last year. But even stripping out the effects of energy and food prices, core inflation was 1.3 percent in June.
Many central banks target a certain level of inflation. The Fed, however, has a dual mandate of both full employment and stable prices.
On the employment mandate, Fischer said, the Fed is doing “just fine.”
“The concern about this situation is not to move before we see inflation as well as employment returning to more normal levels,” he said, explaining in part why the Fed did not raise its interest rate target at its June meeting.
With the unemployment rate at 5.3 percent in July, the economy is near the Fed’s assessment of healthy long-term unemployment, although that measure does not account for the large numbers of people who’ve seen their hours cut or who have quit the job hunt in frustration.
Fischer, Fed Chairwoman Janet Yellen, and other officials at the central bank have said they will rely on incoming economic data to decide when to begin tightening money by raising interest rates.
Currently, private sector economists are divided over whether the Fed will raise rates from zero for the first time since 2008 at its next meeting in September.
