U.S. vulnerable to global slowdown, volatility: Fed's Fischer

Mon Feb 1, 2016 2:59pm EST
 
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By Jonathan Spicer

NEW YORK (Reuters) - The U.S. economy could suffer, with inflation remaining too low, if recent volatility in financial markets persists and signals a slowdown in the global economy, the Federal Reserve's second-in-command said on Monday.

Fed Vice Chairman Stanley Fischer, however, warned about jumping to conclusions given that some past bouts of financial market turbulence have not harmed the world's largest economy.

His speech, less than a week after the Fed held interest rates steady, appeared to reinforce the view that a month-long plunge in world stocks and oil prices could stay the U.S. central bank's hand as it looks to continue raising rates this year.

"At this point, it is difficult to judge the likely implications of this volatility," Fischer told the Council on Foreign Relations in New York.

"If these developments lead to a persistent tightening of financial conditions, they could signal a slowing in the global economy that could affect growth and inflation in the United States," he added. "But we have seen similar periods of volatility in recent years that have left little permanent imprint on the economy."

The Fed hiked interest rates by a quarter of a percentage point in mid-December, its first tightening in nearly a decade. At the time it published forecasts suggesting four more hikes were to come in 2016.

Then, through much of January, markets were turbulent on weakness in China and elsewhere that raised concerns of a global economic slowdown. These worries grew on Monday when data showed monthly Chinese manufacturing activity shrank at its fastest pace in almost three-and-a-half years.

Over that time, Fischer said, oil price drops and the dollar's rise suggested inflation "would likely remain low for somewhat longer than had been previously expected" before moving back to the Fed's 2 percent target.   Continued...

 
Federal Reserve Vice Chairman Stanley Fischer speaks during a televised interview during the Federal Reserve Bank of Kansas City's annual Jackson Hole Economic Policy Symposium in Jackson Hole, Wyoming in this August 28, 2015 file photo. REUTERS/Jonathan Crosby