Fed vice-chairman Fischer: 'haven't made decision yet' on rate rise

Fischer told CNBC TV it was “too early to tell” whether the markets turmoil sparked by China has lessened the argument for a long-expected increase in the federal funds rate.
Fischer told CNBC TV it was “too early to tell” whether the markets turmoil sparked by China has lessened the argument for a long-expected increase in the federal funds rate.REUTERS

WASHINGTON (AFP) - Federal Reserve vice-chairman Stanley Fischer said Friday that no decision had been made yet on raising interest rates at the US central bank’s Sept 16-17 policy meeting.

Fischer told CNBC television in an interview that while the US economy remains strong, it was “too early to tell” whether the markets turmoil sparked by China has lessened the argument for a long-expected increase in the federal funds rate.

“We haven’t made a decision yet, and I don’t think we should make a decision” before the meeting, he said.

“The change in the circumstances which began with the Chinese devaluation is relatively new and we are still watching how it unfolds. So I wouldn’t want to go ahead and decide right now.”

“We are dealing with something which happened about 10 days ago, particularly the change in the circumstances. We’ve got a little over two weeks before we make the decision and we’ve got time to wait and see the incoming data and see what exactly, what is going on now in the economy.”

He said the Fed is still heading in the direction of undertaking the first rate increase in nine years, after holding the Fed funds rate near zero since the 2008 economic crisis.

He said the Fed needs to get more information on how the labour market is strengthening and will be paying attention to the August jobs report coming out next week.

Up to now, he noted, the data “has been impressive, and the economy is returning to normal.”

However, he added, “We are not certain we’re there yet.”

Fischer downplayed the impact on the US economy of what he called a “relatively small” devaluation of the Chinese yuan, and said what happens in China has a fairly small direct effect on US exports.

The question, he said, is how China’s slowdown hits other countries in Asia and elsewhere, and how that cumulative effect could spill over into the United States.

And he said the impact of the immediate turmoil in the markets needs to be understood.

“If you don’t understand the market volatility, and I’m sure we don’t fully understand it now... it does affect the timing of a decision you might want to make.”

Even so, he said, he retained “pretty high” confidence that US inflation would pick up strength, one of the goals of the Fed as it seeks to take monetary policy off its six-year crisis stance and normalize interest rates.

After an earlier statement by the head of the Fed’s New York branch, William Dudley, that the argument for a rate rise in September had diminished, markets took Fischer’s comments as relatively bullish.

The dollar jumped 0.6 per cent against the euro to US$1.1162, and the yield on the 10-year Treasury surged from 2.13 per cent to 2.18 per cent.

Wall Street stocks were meanwhile little-changed, the S&P 500 down 0.06 per cent a little after midday.