BFW 10/11 22:04 MORE: Fischer Says Global Economy May Affect Fed Rate Rise Pace
Fischer Says Global Economy May Affect Fed Rate Rise Pace (1)
2014-10-11 21:53:10.99 GMT
(Updates with comment on emerging markets in 14th
paragraph. See GMEET <GO> for more on the IMF meetings.)
By Christopher Condon
Oct. 11 (Bloomberg) -- Federal Reserve Vice Chairman
Stanley Fischer said weaker-than-expected global growth could
prompt the U.S. central bank to slow the pace of eventual
interest-rate increases.
“If foreign growth is weaker than anticipated, the
consequences for the U.S. economy could lead the Fed to remove
accommodation more slowly than otherwise,” Fischer said in
speech today in Washington.
Fischer, 70, said the Fed won’t raise rates until the U.S.
expansion “has advanced far enough,” and most emerging markets
should be able to weather the increase.
Fischer’s remarks highlight growing concern among U.S.
central bank officials about the impact of a global slowdown and
a strengthening dollar. He spoke to central bankers and finance
ministers gathered in Washington for the annual meetings of the
World Bank and International Monetary Fund.
The Fed’s policy making body last month expressed concern
that weak demand, particularly in Europe, could add to the
dollar’s appreciation, hurting U.S. exporters and damping
inflation, according to minutes released Oct. 8.
The International Monetary Fund this week reduced its
forecasts for global growth in 2015 and warned about the risks
of rising geopolitical tensions and a financial-market
correction as stocks reach “frothy” levels.
Fed Forecasts
Most Fed officials expect to raise the benchmark interest
rate some time next year, according to projections released on
Sept. 17 following their last meeting. Traders see about a 33
percent chance the Fed will raise the benchmark rate by its July
2015 meeting, down from a 59 percent on Sept. 18, fed funds
futures data compiled by Bloomberg show.
“Tightening should occur only against the backdrop of a
strengthening U.S. economy and in an environment of improved
household and business confidence,” Fischer said.
Fischer, the former head of Israel’s central bank, said the
Fed is cognizant of the impact its monetary policy decisions on
the rest of the world. He cited last year’s “taper tantrum,”
when global stocks fell after then-Chairman Ben S. Bernanke said
the Fed would soon start slowing the pace of asset purchases.
Still, Fischer said the U.S. must first keep its “own
house in order.”
“Strong and stable U.S. growth in the context of inflation
close to our policy objective has substantial benefits for the
world,” he said.
Better Prepared
Fischer said emerging-market countries have improved their
preparedness for higher rates in the U.S. by reducing inflation,
improving debt levels, building foreign reserves and better
regulating their financial systems.
“The normalization of our policy should prove
manageable,” he said. “It does not seem that the overall
risks to global financial stability are unusually elevated at
this time.”
“Nevertheless, it could be that some more vulnerable
economies, including those that pursue overly rigid exchange-
rate policies, may find the road to normalization somewhat
bumpier.”
He said foreign economies should also benefit from improved
communication from the Fed.
“The Federal Reserve will promote a smooth transition by
communicating our assessment of the economy and our policy
intentions as clearly as possible,” he said.
The world economy will grow 3.8 percent next year, compared
with a July forecast for 4 percent, after a 3.3 percent
expansion this year, the IMF said. The euro area will grow 1.3
percent next year, slower than the 1.5 percent predicted in
July.
For Related News and Information:
There They Go Again: Fed Officials Give Timetables for Rate Rise
NSN ND755E6KLVRH <GO>
Draghi Clashes With Schaeuble on Europe as IMF Adds Pressure
NSN ND8N5S6K50XV<GO>
Top Stories:TOP<GO>
Top Fed stories: FEDU <GO>
Global Economic Watch: GEW <GO>
Cebntral Bank Rates: CBRT <GO>
To contact the reporter on this story:
Christopher Condon in Washington at +1-202-654-4333 or
ccondon4@bloomberg.net
To contact the editors responsible for this story:
Chris Wellisz at +1-202-624-1862 or
cwellisz@bloomberg.net
Alister Bull
2014-10-11 21:53:10.99 GMT
(Updates with comment on emerging markets in 14th
paragraph. See GMEET <GO> for more on the IMF meetings.)
By Christopher Condon
Oct. 11 (Bloomberg) -- Federal Reserve Vice Chairman
Stanley Fischer said weaker-than-expected global growth could
prompt the U.S. central bank to slow the pace of eventual
interest-rate increases.
“If foreign growth is weaker than anticipated, the
consequences for the U.S. economy could lead the Fed to remove
accommodation more slowly than otherwise,” Fischer said in
speech today in Washington.
Fischer, 70, said the Fed won’t raise rates until the U.S.
expansion “has advanced far enough,” and most emerging markets
should be able to weather the increase.
Fischer’s remarks highlight growing concern among U.S.
central bank officials about the impact of a global slowdown and
a strengthening dollar. He spoke to central bankers and finance
ministers gathered in Washington for the annual meetings of the
World Bank and International Monetary Fund.
The Fed’s policy making body last month expressed concern
that weak demand, particularly in Europe, could add to the
dollar’s appreciation, hurting U.S. exporters and damping
inflation, according to minutes released Oct. 8.
The International Monetary Fund this week reduced its
forecasts for global growth in 2015 and warned about the risks
of rising geopolitical tensions and a financial-market
correction as stocks reach “frothy” levels.
Fed Forecasts
Most Fed officials expect to raise the benchmark interest
rate some time next year, according to projections released on
Sept. 17 following their last meeting. Traders see about a 33
percent chance the Fed will raise the benchmark rate by its July
2015 meeting, down from a 59 percent on Sept. 18, fed funds
futures data compiled by Bloomberg show.
“Tightening should occur only against the backdrop of a
strengthening U.S. economy and in an environment of improved
household and business confidence,” Fischer said.
Fischer, the former head of Israel’s central bank, said the
Fed is cognizant of the impact its monetary policy decisions on
the rest of the world. He cited last year’s “taper tantrum,”
when global stocks fell after then-Chairman Ben S. Bernanke said
the Fed would soon start slowing the pace of asset purchases.
Still, Fischer said the U.S. must first keep its “own
house in order.”
“Strong and stable U.S. growth in the context of inflation
close to our policy objective has substantial benefits for the
world,” he said.
Better Prepared
Fischer said emerging-market countries have improved their
preparedness for higher rates in the U.S. by reducing inflation,
improving debt levels, building foreign reserves and better
regulating their financial systems.
“The normalization of our policy should prove
manageable,” he said. “It does not seem that the overall
risks to global financial stability are unusually elevated at
this time.”
“Nevertheless, it could be that some more vulnerable
economies, including those that pursue overly rigid exchange-
rate policies, may find the road to normalization somewhat
bumpier.”
He said foreign economies should also benefit from improved
communication from the Fed.
“The Federal Reserve will promote a smooth transition by
communicating our assessment of the economy and our policy
intentions as clearly as possible,” he said.
The world economy will grow 3.8 percent next year, compared
with a July forecast for 4 percent, after a 3.3 percent
expansion this year, the IMF said. The euro area will grow 1.3
percent next year, slower than the 1.5 percent predicted in
July.
For Related News and Information:
There They Go Again: Fed Officials Give Timetables for Rate Rise
NSN ND755E6KLVRH <GO>
Draghi Clashes With Schaeuble on Europe as IMF Adds Pressure
NSN ND8N5S6K50XV<GO>
Top Stories:TOP<GO>
Top Fed stories: FEDU <GO>
Global Economic Watch: GEW <GO>
Cebntral Bank Rates: CBRT <GO>
To contact the reporter on this story:
Christopher Condon in Washington at +1-202-654-4333 or
ccondon4@bloomberg.net
To contact the editors responsible for this story:
Chris Wellisz at +1-202-624-1862 or
cwellisz@bloomberg.net
Alister Bull