Speaking at a conference in Washington, the Federal Reserve’s Vice Chairman, Stanley Fischer, said that while earlier delays were justified it might be time for a rate increase when the Fed meets in December.
He wasn’t the only Fed official to argue for a rate increase on Thursday. New York Fed President William Dudley said that he ” see[s] the risks right now of moving too quickly versus moving too slowly as nearly balanced.”
In Washington, Fischer said that Fed policymaking has been a key factor in preserving the American economy despite recent threats.
“While the dollar’s appreciation and foreign weakness have been a sizable shock, the U.S. economy appears to be weathering them reasonably well, notwithstanding their large effects on certain sectors of the economy heavily exposed to international trade,” the vice chairman said. “Monetary policy has played a key role in achieving these outcomes through deferring liftoff relative to what was expected a little over a year ago.”
He added that the statement issued by the Federal Open Market Committee after it met last month “indicated that it may be appropriate to raise the target range for the federal funds rate at the next meeting in December.” But a final decision would “depend on the Committee’s assessment of the progress – real and expected – that has been made toward meeting our goals of maximum employment and price stability.”
But while those numbers fit into what the Fed has said it wants to see before rates achieve “liftoff,” Fischer said Thursday that “as policymakers, we must always be vigilant of the possibility of events unfolding differently than we expect. We’ve still got another month-plus of events to unfold, and we have to be ready to react to the actual events and not the ones we might prefer to have.”
One possible drawback to raising rates could be that such a decision cuts off economic growth. With inflation not yet a problem, an argument could be made that a rate hike is not only necessary but also counterproductive if it chokes off investment.
But Dudley, the New York Fed chief, pushed back against that critique on Thursday.
“I don’t favor waiting until I sort of see the whites in inflation’s eyes,” he said.
Chicago Fed President Charles Evans seemed to be less convinced that a rate increase was a good idea, saying that optimism from various regions in recent years has been frequently followed by “a trail of tears.”
But the presidents of the St. Louis and Richmond Federal Reserve banks, James Bullard and Jeffrey Lacker, reiterated that any risks would be offset by the FOMC’s commitment to slowly raising rates once liftoff has been achieved.
Earlier this fall, Fischer argued that the Fed “should not wait until inflation is back to 2 percent to begin tightening.”