Policy uncertainty 'hitting US growth'

NEW YORK • Uncertainty surrounding US government policy may be holding back economic growth because of its negative impact on business investment, said Federal Reserve vice-chairman Stanley Fischer.

A "cautious approach to investment" by US companies "may in part reflect the uncertainty about the policy environment", Mr Fischer said on Thursday in remarks prepared for a speech in Vineyard Haven, Massachusetts.

"Mitigating the damping effect of uncertainty by providing more clarity on the future direction of government policy is highly desirable."

Mr Fischer's comments followed the publication on Wednesday of minutes of the interest-rate setting Federal Open Market Committee's June meeting, which showed that "contacts at some large firms indicated they had curtailed their capital spending, in part because of uncertainty about changes in fiscal and other government policies".

The minutes also revealed growing concern among US central bankers that a string of weak inflation data over the last few months may prevent them from reaching their 2 per cent goal for longer than they had previously anticipated.

After the US presidential election in November, more Fed officials said upside risks to their inflation forecasts outweighed downside risks, for the first time in five years. Now, more see downside risks outweighing upside risks once again, according to the minutes.

Mr Fischer cited government spending on research and development, infrastructure, education and public health as examples of ways the White House and US lawmakers could promote faster increases in living standards.

"Government policy works best when it can address a need that the private sector neglects," he said. "Reasonable people can disagree about the right way forward, but if we as a society are to succeed, we need to follow policies that will support and advance productivity growth."

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A version of this article appeared in the print edition of The Straits Times on July 08, 2017, with the headline 'Policy uncertainty 'hitting US growth''. Print Edition | Subscribe