US econ­omy needs a boost from govt: Fed

The Myanmar Times - - Business -

FED­ERAL Re­serve vice chair Stan­ley Fis­cher said that slow US growth is ham­per­ing the Fed’s plan to raise in­ter­est rates, ar­gu­ing the govern­ment needs to boost the econ­omy.

A be­low-par read­ing on man­u­fac­tur­ing in New York off­set news that over­all fac­tory pro­duc­tion grew for the third time in four months.

While in­vestors glob­ally ex­pect US in­ter­est rates will rise by the end of the year, the fig­ures tem­pered ex­pec­ta­tions about the pace of rises af­ter De­cem­ber.

Mr Fis­cher said in­ter­est rates would likely be sup­pressed by sev­eral fac­tors, in­clud­ing weak eco­nomic growth at home and abroad and low cor­po­rate in­vest­ment.

The news added to down­ward pres­sure on the dol­lar, which fell against the yen, the euro and even the pound in New York. And while it edged back against the yen in Asia yes­ter­day, it con­tin­ued to strug­gle against the euro and the pound.

Amid wor­ries that in­ter­est rates have been too low for too long, Mr Fis­cher noted that peo­ple think the Fed can sim­ply raise its bench­mark short­term rate to push up long-term rates more broadly.

“It is not that sim­ple,” he said in a speech to the Eco­nomic Club of New York on Oc­to­ber 17.

With the Fed ex­pected to raise the fed­eral funds rate in De­cem­ber, Mr Fis­cher cited key fac­tors out­side the cen­tral bank’s con­trol – from de­mo­graph­ics to tech­no­log­i­cal in­no­va­tion – that limit the abil­ity of mone­tary pol­icy to en­hance and shape eco­nomic growth.

He said low pro­duc­tiv­ity growth, the in­creas­ing num­bers of Amer­i­cans re­tir­ing from the work­force, low cor­po­rate in­vest­ment and slow in­ter­na­tional eco­nomic growth are all work­ing, against Fed pol­icy, to dampen US eco­nomic growth.

“In sum­mary, a va­ri­ety of fac­tors have been hold­ing down in­ter­est rates and may con­tinue to do so for some time,” he said. “But eco­nomic pol­icy can help off­set the forces driv­ing down longer-run equi­lib­rium in­ter­est rates.

“A com­bi­na­tion of more en­cour­age­ment for pri­vate in­vest­ment, im­proved pub­lic in­fra­struc­ture, bet­ter education, and more ef­fec­tive reg­u­la­tion is likely to pro­mote faster growth of pro­duc­tiv­ity and liv­ing stan­dards.”

Mr Fis­cher said per­sis­tent low rates are a wor­ry­ing prob­lem, not­ing they sig­nal that US long-run growth prospects could be “dim”.

In ad­di­tion, he said, low rates make the econ­omy more vul­ner­a­ble to shocks that can push it into re­ces­sion, and give the Fed lit­tle room to ma­noeu­vre to off­set that. –

Photo: AFP

Stan­ley Fis­cher says the Fed has sev­eral fac­tors to con­sider.

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