Markets have not yet signaled enough trouble ahead for the Federal Reserve to call off the interest rate hikes expected the rest of this year, Fed vice chairman Stanley Fischer suggested Tuesday night.
It is “still early to judge the ramifications of the increased market volatility of the first seven weeks of 2016,” Fischer said in a speech at an energy industry conference in Houston.
“We’ve seen volatility like this,” before, said Fischer, “and sometimes it predicts something and sometimes it goes away.”
He did acknowledge, however, that recent financial market turbulence could “signal a slowing in the global economy that could affect growth and inflation in the United States” if it continued for much longer. In particular, he noted, investor concerns could be related to the prospect of a serious slowdown in China.
In general, Fischer echoed the remarks offered by Fed chairwoman Janet Yellen in congressional testimony earlier in the month. Yellen told lawmakers the Fed was going to avoid making decisions prematurely based on the most recent data.
Both Yellen and Fischer’s comments suggest no decisions have yet been made regarding whether to further tighten monetary policy at the Fed’s upcoming March meeting and in subsequent meetings this year. Following the first rate hike in nine years in December, Fed members projected that they are likely to raise rates four times in 2016.
Among the financial developments that could play into the Fed’s decisionmaking are a significant decline in stocks over the winter, an appreciation in the dollar, falling commodity prices and higher yields on corporate bonds. All of those factors could counteract the Fed’s efforts to ensure that money is easily available, or could even reflect investor expectations of future tighter monetary policy.
On the other hand, job creation has remained strong in recent months, providing reassurance to the Fed that the economic recovery is still on track.
“From the viewpoint of employment, we’re practiculaly at full employment,” Fischer remarked.
