Fed Vice Chair Fischer: Rate hike is likely this year

AP News
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Posted: Mar 23, 2015 3:40 PM

NEW YORK (AP) — Federal Reserve Vice Chairman Stanley Fischer says he expects the Fed to start raising interest rates sometime this year. Once that happens, though, rates won't likely move in any predictable pattern, he added.

Fischer's remarks Monday built on a message the Fed sent last week after its latest policy meeting ended. The central bank opened the door to a rate increase by no longer saying it would be "patient" in starting to raise rates. That change was viewed as a sign that the Fed could raise rates as early as June.

At the same time, the Fed signaled that it was in no hurry: It noted that it needed to see the job market improve further and for inflation to rise above extremely low levels. Many economists interpreted that to mean a rate increase was more likely later in the year at the earliest.

The Fed has kept its key short-term rate near zero since 2008 to try to bolster the economy after a devastating financial crisis and recession.

"An increase in the target federal funds range likely will be warranted before the end of the year," Fischer said in a speech to the Economic Club of New York.

Employers have added 200,000-plus jobs each month for the past year. Unemployment is at a seven-year low of 5.5 percent. But inflation hovers well below the Fed's 2 percent target.

Fischer reiterated that the Fed wants to be "reasonably confident that inflation will move back to our 2 percent objective over the medium term."

He also stressed the importance of looking beyond when the Fed begins raising rates. After its first increase, the Fed may adjust its key rate either up or down, depending on the economy's performance, the vice chairman said.

A "smooth path upward in the federal funds rate will almost certainly not be realized, because, inevitably, the economy will encounter shocks," Fischer said. "When shocks happen, as they do, policymakers will have to respond to at least some of them."

He praised the European Central Bank's recent response to weak growth and described its bond-buying program as a "welcome and well-planned move." The ECB's euro purchases are intended to raise inflation from dangerously low levels and stimulate the eurozone's recovery.

"It's having a bigger impact on the capital markets than I think many had expected and is having a bigger impact on expectations of economic activity in Europe than I think most people had expected," Fischer said.

He added that the ECB's negative interest rates probably can't go much lower and that he doesn't think they will weaken Europe's economic health.