Fed rate hikes may trig­ger global volatil­ity: Fischer

Enterprise - - International news -

When the Fed­eral Re­serve raises U. S. in­ter­est rates for the first time in nearly a decade, it should weigh the ef­fects on global economies and can ex­pect some bouts of fi­nan­cial mar­ket volatil­ity, a top Fed of­fi­cial said on Tues­day.

“In the nor­mal­iz­ing of its pol­icy, just as when loos­en­ing pol­icy, the Fed­eral Re­serve will take ac­count of how its ac­tions af­fect the global econ­omy,” U. S. Fed­eral Re­serve Vice Chair­man Stan­ley Fischer said in Is­rael. “The ac­tual rais­ing of pol­icy rates could trig­ger fur­ther bouts of volatil­ity, but my best es­ti­mate is that the nor­mal­iza­tion of our pol­icy should prove man­age­able for the emerg­ing mar­ket economies.”

Fed Chair Janet Yellen last week sig­naled the U. S. cen­tral bank is on track to raise rates this year, de­spite a weak first quar­ter that some an­a­lysts be­lieve could force the Fed to wait longer be­fore start­ing its first tight­en­ing cy­cle since 2004- 2006.

Fischer gave no time frame for rais­ing rates in the text of his re­marks, but made it clear that higher rates are com­ing.

“Mar­kets should not be greatly sur­prised by ei­ther the tim­ing or the pace of nor­mal­iza­tion,” he said, re­it­er­at­ing that the Fed will not raise rates un­til the la­bor mar­ket has im­proved fur­ther and pol­i­cy­mak­ers are con­fi­dent in­fla­tion is headed back to the Fed’s 2 per­cent goal.

Still, he said, com­mu­ni­ca­tions can be a “tricky busi­ness,” and when the Fed does tighten, pol­i­cy­mak­ers are brac­ing for spillovers to fi­nan­cial mar­kets both at home and abroad.

Some of the world’s more vul­ner­a­ble economies “may find the road to nor­mal­iza­tion some­what bumpier,” said Fischer, a for­mer Bank of Is­rael chief who pref­aced his speech with re­marks in He­brew.

To smooth the way, he said, the Fed will com­mu­ni­cate its view of the econ­omy and its pol­icy in­ten­tions “as clearly as pos­si­ble.”

If for­eign eco­nomic growth is slower than an­tic­i­pated, the Fed could raise rates more slowly than oth­er­wise, he said.

“We are work­ing to en­sure that our fi­nan­cial in­sti­tu­tions and other mar­ket par­tic­i­pants are pre­pared for the nor­mal­iza­tion of mon­e­tary pol­icy and the re­turn to a world of higher in­ter­est rates,” Fischer said. “It is equally im­por­tant that in­di­vid­u­als, busi­nesses, and in­sti­tu­tions around the world do the same.”

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.