Pushing interest rates into negative territory has been surprisingly successful in helping ailing economies, the No. 2 official at the Federal Reserve said Monday.
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“At this point, it is hard to judge the likely implications of this volatility”, Fischer said at an event held by the Council on Foreign Relations, referring to the recent global market volatility. He also added that a “persistent tightening of financial conditions” could slow down global growth, hit output and inflation in the US.
Given Stanley Fischer’s vocal concerns surrounding the financial stability risks associated with low rates, he’s often regarded as the most hawkish of the big three central bankers – Yellen, Fischer, Dudley.
Fischer said that since the December rate increase, further declines in oil prices and a further strengthening in the dollar have suggested that inflation will likely remain low somewhat longer than the Fed had previously expected.
S&P’s estimates on Fed rates could impact its projections of borrowing costs for numerous countries and companies it rates, because US rates tend to set the benchmark for borrowing costs globally.
“This scenario does not represent a forecast of the Federal Reserve”, the central bank said.
The central bank left its target range for the federal funds rate unchanged at 0.25 percent to 0.5 percent last week after raising it in December for the first time since 2006.
But once they cease “to fall and they will balance their effects on inflation will dissipate”, said he assured repeating that inflation was going up around the target of 2% medium term.
“But I suppose if the economy were to unexpectedly weaken dramatically, and we decided that we needed to use a full array of monetary policy tools to provide stimulus, it’s something that we would contemplate as a potential action”, he said on January 15.
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Many economists had expected the Fed to raise rates four times this year.
