Public spend needed, says US Fed

While markets wait for Janet Yellen’s latest message about the direction of monetary policy, the Federal Reserve chief and her colleagues already have one for politicians: the US economy needs more public spending to shift into higher gear.

In recent weeks, Yellen and three of the Fed’s four Washington-based governors have called in speeches and Congressional hearings for government infrastructure spending and other efforts to counter weak growth, sagging productivity improvements, and lagging business investment.

The fifth member has supported the idea in the past.

The Fed has no direct influence over fiscal policy, and its officials traditionally refrain from discussing it in detail. Having its top officials – from Yellen to former investment banker and George Bush administration official Jerome Powell – speak in one voice sends a strong signal to the next president and Congress about the limits they face in setting monetary policy and what is needed to improve the economy’s prospects.

The Fed’s annual conference in Jackson Hole, Wyoming, where Yellen speaks on Friday, will focus on how to improve central banks’ “toolkit”, but the Fed’s top policymakers say those tools are not enough.

“Monetary policy is not well equipped to address long-term issues such as the slowdown in productivity growth,” Fed vice-chair Stanley Fischer said on Sunday.

He said it was up to the administration to invest in infrastructure and education. –