JACKSON HOLE, WYO. — Federal Reserve Vice Chairman Stanley Fischer said Saturday that the persistently low inflation that has plagued the country in recent years finally could begin to reverse but likely would rise slowly.
Speaking at an annual symposium sponsored by the Kansas City Fed, Fischer expressed faith in the central bank’s ability to return inflation to its goal of 2 percent, which is generally associated with a healthy economy. But he cautioned that amid wild swings in world financial markets and China’s devaluation of its currency, central bank officials are monitoring the global economy “even more closely than usual.”
“In making our monetary policy decisions, we are interested more in where the U.S. economy is heading than in knowing whence it came,” Fischer said. “That is why we need to consider the overall state of the U.S. economy as well as the influence of foreign economies on the U.S. economy as we reach our judgment on whether and how to change monetary policy.”
The Fed is facing a momentous decision over whether to begin withdrawing its unprecedented support for the U.S. economy when it meets next month in Washington for its regular policy meeting. The central bank slashed its target interest rate to zero during the depths of the financial crisis in 2008 and has left it there ever since in hopes of fostering a stronger recovery.
In the past year, hiring has been robust and the unemployment rate has dropped to 5.3 percent, leading officials to consider the momentous step of raising its benchmark rate.
Yet exceedingly low inflation has thrown a wrench into those plans. Government data released Friday showed prices, excluding food and energy, rose just 1.2 percent compared with a year ago — well below the Fed’s goal. In his remarks, Fischer said the stronger U.S. dollar, falling oil prices and weak global demand have weighed on inflation in the past year. But he said many of those factors are beginning to fade.
