By Kate Davidson
Federal Reserve Vice Chairman Stanley Fischer on Friday suggested the central bank is getting closer to raising interest rates again, though he stopped short of saying when the next move might occur.
"In my view, the Fed appears reasonably close to achieving both the inflation and employment components of its mandate," Mr. Fischer said in remarks prepared for delivery at a conference hosted by the Central Bank of Chile. "Accordingly, the case for removing accommodation gradually is quite strong, keeping in mind that the future is uncertain and that monetary policy is not on a preset course."
Mr. Fischer's remarks are the first from a Fed governor since Tuesday's U.S. presidential election. Though several Fed regional bank presidents have commented on the results, the Fed vice chairman didn't mention President-elect Donald Trump's surprise victory in his prepared remarks, and avoided doing so during a question-and-answer session.
In a statement following their policy meeting last week, Fed officials dropped new hints they could raise rates at their Dec. 13-14 meeting, barring any unforeseen shocks. Mr. Trump's win on Tuesday sparked a widespread selloff in global markets overnight, but U.S. markets have since rallied on speculation that Mr. Trump's proposed policies could help boost growth.
Asked about the rise in the yield on the 10-year U.S. Treasury note "over the past couple of days," Mr. Fischer said the Fed tries not to comment on day-to-day market movements.
"Of course we will watch events and, depending on how the markets turn out and how the economy turns out, we will adjust our policy if we think that's necessary," he said. "If you ask me in which direction it would have an impact, I'm not even sure I could answer that question."
Mr. Fischer was also asked about the possibility that expansionary fiscal policy in the U.S. could help support monetary policy in boosting growth going forward. He acknowledged it would help, but said, "We'll have to see what happens."
Most of Mr. Fischer's remarks on Friday focused on the spillover effects of U.S. monetary policy, which he said foreign central banks should be able to manage.
Higher rates in the U.S. would be precipitated by a stronger U.S. economy, which would benefit the rest of the globe, he said. And raising interest rates gradually could help mitigate potential adverse spillovers.
"In my view, the prospects of a continued steady expansion in the U.S. economy are maximized to the extent that we proceed with a gradual removal of accommodation," he said."Such a gradual approach to tightening policy will also help mitigate the risk of undesirable spillovers abroad -- including by reducing the risk of having to tighten more abruptly later on -- and in turn promote a stronger global economy."
Emerging market economies, many of which were battered when the Fed signaled it may taper asset purchases in mid-2013, have "markedly improved" fundamentals, which should also insulate them from the effects of higher U.S. interest rates, Mr. Fischer said.
Other central banks should also be able to respond appropriately to tighter U.S. monetary policy with their own policy actions, he said.
On the other hand, a noticeably faster U.S. recovery could prompt the Fed to raise interest rates faster than expected, which "could exert noticeably larger spillovers abroad by putting more upward pressure on foreign interest rates and by inducing larger depreciations of foreign currencies."
Asked about the possibility of another "taper tantrum" similar to events in 2013, Mr. Fischer said the Fed has tried to be as open as they can be about the path of rate increases.
"If and when we raise interest rates, nobody will be able to say they are surprised," he said.
Write to Kate Davidson at firstname.lastname@example.org
(END) Dow Jones Newswires
November 11, 2016 10:22 ET (15:22 GMT)
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