Sydney Morning Herald reported, Fed vice chairman Stanley Fischer said overnight that US policy makers’ forecasts predicting four interest-rate increases in 2016 were “in the ballpark”, though China’s slowing economy and other sources of uncertainty make it difficult to predict the path of policy.
Regarding China, Fischer said “there are levels of uncertainty and they’ve risen a bit now”, while downplaying the direct effect on the US economy.
“If all China’s neighbours and other large parts of the world are negatively affected to a considerable extent by China, then that would be an impact,” he said. “The rest of the world matters to us. If it was only China it would still matter, but a good deal less.”
“From the viewpoint of what really matters, it’s what people think is going to happen over the next couple of years, and I think September was a good example of that,” he said. “We waited, looked around, saw that it hadn’t had a huge effect and made the move at the next suitable occasion.”
Fischer said he continued to expect inflation to move back toward the Fed’s 2 per cent target as the price of oil and the value of the US dollar stabilise. Still, he said, rates will probably remain low.
“As long as inflation is lower than the 2 per cent and unemployment is somewhere around where it should be, there’ll be a force requiring us to maintain an accommodative policy,” he said.
Investors currently expect only two quarter-point increases this year, according to pricing in federal funds futures, but Fischer said that the view of the market was “too low”.
“We make our own analysis and our analysis says that the market is under-estimating where we’re going to be,” he said.