US near full employment, inflation temporarily 'very low,' says Fed's Fischer

The US economy has nearly achieved full employment and inflation is only very low "temporarily", said Federal Reserve vice chairman Stanley Fischer. PHOTO: AFP

NEW YORK (REUTERS) - US inflation is only temporarily "very low" due in part to commodity prices, while the US economy has nearly achieved full employment, Federal Reserve vice chairman Stanley Fischer said on Monday.

"A large part of the current inflation is temporary. It has to do with the decline in the price of oil; it has to do with the decline in the price of raw materials," he said on Bloomberg TV. "These are things which will stabilize at some point," Mr Fischer added, in comments that were careful not to tip his hand on when he thinks US interest rates should rise.

"We are in a situation with ... nearly full employment but very low inflation," he said.

The US central bank has kept rates near zero since the depths of financial crisis in 2008, but could start tightening policy as soon as next month, given unemployment has fallen to 5.3 per cent from a recessionary high of 10 percent.

The Fed's preferred inflation measure is 1.3 per cent, below its 2-per cent target, which has sown caution among some policymakers.

Rates will not stay this low "forever, and we need to be looking ahead as we go," said Mr Fischer, a close ally of Fed chair Janet Yellen. Employment has been "rising pretty fast ... yet inflation is pretty low."

He said the Fed "would be happier if we saw more physical investment than financial investment" given the monetary accommodation.

Globally, Mr Fischer said the deflationary trend "bothers" the Fed, but is one of many factors the US central bank is watching.

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