Fed vice chair under market’s microscope
Next two weeks to play crucial role
WASHINGTON — What once seemed a sure bet — that the Federal Reserve would raise interest rates in September — appears less certain following a wild week of stock market turbulence.
The market’s ride and how the Fed will react provide the backdrop for the annual high-profile economic conference in Jackson Hole, Wyo.
Fed Chair Janet Yellen decided to skip this year’s meeting, so Vice Chairman Stanley Fischer is commanding top attention, with investors eagerly parsing his every word.
Fischer’s message: Incoming economic data and market developments in the next two weeks will play crucial roles in determining whether the Fed raises in- terest rates in September.
The Dow Jones industrial average fell11.76 points, or 0.1 percent, to 16,643.01 Friday. The Standard & Poor’s 500 index rose 1.21 points, or 0.1 percent, to 1,988.87. The Nasdaq composite gained 15.62 points, or 0.3 percent, to 4,828.32.
In an interview Friday with CNBC, Fischer acknowledged that before the recent market volatility, “there was a pretty strong case” for a rate hike at the Sept.16-17 meeting, though it wasn’t conclusive.
But now the Fed needs to assess the economic impact of events in China and on Wall Street.
But Fischer said Fed officials realize they need to act before data requires them to hike rates to alleviate inflation.
“When the case is overwhelming, if you wait that long, you will be waiting too long,” Fischer said. “There is always uncertainty, and we will just have to recognize that.”
Fischer tried to reassure markets, as Yellen has, that when the Fed begins to raise rates, it plans to do so gradually. The Fed’s key rate has been at a range of zero to a quarter-point since late December 2008.
Fischer said the first move would nudge that up by a quarter-point to a range of 0.25 percent to 0.5 percent and then pausing to monitor the impact.
He said with that small increase, rates will still be historically low, continuing to provide support to consumer and business borrowers.
“We will be adjusting the knob slightly,” he said.
Fischer said his “confidence is pretty high” that low levels of inflation will head toward the Fed’s target of 2 percent as temporary effects from a big drop in energy prices fade.
A government report Friday showed that the Fed’s preferred measure of inflation is up just 1.2 percent over the past 12 months. It has been below 2 percent for the past three years.