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August 22, 2016

Fed's Fischer, Williams say inflation close to target

Federal Reserve Vice Chairman Stanley Fischer spoke optimistically on Sunday about the economy at an Aspen Institute conference, where he said the Fed is close to meeting its inflation and jobs goals.

"Employment has increased impressively over the past six years since its low point in early 2010, and the unemployment rate has hovered near 5 percent since August of last year, close to most estimates of the full-employment rate of unemployment," Fischer said. "The economy has done less well in reaching the 2 percent inflation rate."

However, he added that the personal consumption expenditure price index is at 1.6 percent, which is "within hailing distance of 2 percent … So we are close to our targets."

On Monday, San Francisco Fed President John Williams made a similarly optimistic statement.

"The broader national economy is in good shape: We're at full employment, and inflation is well within sight of, and on track to reach, our target," he wrote. "Under these conditions, it makes sense for the Fed to gradually move interest rates toward more normal levels."

NAFCU Chief Economist and Director of Research Curt Long said these statement will bring more attention to Fed Chair Janet Yellen's upcoming remarks at the Kansas City Fed's two-day symposium in Jackson Hole, Wyo., this Friday.

"The fact that a number of influential members of the Fed – Presidents Dudley and Williams from New York and San Francisco, respectively, along with Vice Chairman Fischer – have argued that the economy is in relatively good shape raises the odds of a September rate hike," Long said. "There are strong arguments to be made on either side, which heightens the expectations for Janet Yellen's speech on Friday."

Long also noted that Williams and Fischer believe there are limits to what monetary policy can achieve, and that fiscal policy should play a key role in addressing any remaining weaknesses in the economy.

Futures company CME Group currently estimates the odds of a rate hike in September at 18 percent, and it says the odds of at least one rate hike in 2016 are at 50 percent.

The FOMC's next two-day meeting is set for Sept. 20-21.

The Fed's last rate action was in December 2015, when it raised the federal funds target rate increase a quarter point to a range of 0.25 percent to 0.5 percent.

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