Reports of weak global growth could slow the pace at which the Federal Reserve increases interest rates, according to Fed Vice Chairman, Stanley Fischer.
At the International Monetary Fund in Washington on Saturday, Fischer said:
“People should realize there is an uncertainty band around these forecasts of ours.”
Adding that U.S. monetary policy “will change on the basis of data that come in, not because we are going to sit around saying the time has come. The time will come when the data tell us.”
“If foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise.”
“Tightening should occur only against the backdrop of a strengthening U.S. economy and in an environment of improved household and business confidence.”
The IMF downgraded its forecast for global growth in 2015 this week and US bank officials are concerned about lackluster global economic growth and a strengthening dollar, which would have an impact on American exports and dampen inflation.
Most officials expect the Fed to raise the benchmark interest rate at some point in 2015. However, analysts are not so as confident as before that the Fed will be increasing the rate by its July 2015 meeting.
Fischer added:
“Strong and stable U.S. growth in the context of inflation close to our policy objective has substantial benefits for the world.”
“The normalization of our policy should prove manageable. It does not seem that the overall risks to global financial stability are unusually elevated at this time.”
“Nevertheless, it could be that some more vulnerable economies, including those that pursue overly rigid exchange-rate policies, may find the road to normalization somewhat bumpier.”
Concluding:
“The Federal Reserve will promote a smooth transition by communicating our assessment of the economy and our policy intentions as clearly as possible.”