Fed Vice Chair Stanley Fischer said late last week that he is encouraged by the state of the American economy and if conditions continue as they are, the Fed would bring in incremental interest rate hikes but the situation needs to be constantly monitored.
10-year Treasury yields have gained slightly since the surprise election of Republican Donald Trump, even though many analysts saw his win as a negative for the economy as a whole.
“We are looking very closely at the markets and will adjust policy as needed,” said Fischer in a central banking conference in Santiago, Chile. “At this moment in time we need to be flexible and manage policy almost on the fly. Whichever way the market turns we will be ready to adapt.”
“Overall we are encouraged by the U.S. economy and we should see interest rates increase in the near future,” he added.
The central bank’s second-in-command also mentioned that they were “getting closer” to their jobs and inflation targets which made the case for tightening monetary policy even stronger. Analysts in the economic circles tend to agree.
“At the moment we can’t see anything other than a gradual continued expansion for the American economy,” said Stuart Poulson, Head of Corporate trading at Nikko-Desjardins Asset Management.
“If the Fed has the same view then it would be the right time to get interest rates up to normal levels slowly.”
President-elect Trump mentioned he was happy to continue fiscal stimulus and although Fischer didn’t mention what effect the incoming Republican would have for overall economic policy, he confirmed the Fed would be happy with steady stimulus for the economy as it enters a more solid growth phase.
“Should fiscal policy be expanded I don’t think anyone could argue that it wouldn’t help the economy and take some of the burden for growth. The Fed board certainly would see it as a useful addition to the current upswing,” Fischer said.
Should the Fed raise interest rates next month, as is widely expected, they are likely to keep the hike extremely gradual and the prospect of a unified Republican government could mean greater levels of cooperation between departments and less red tape in Washington, according to many experts.
The Fed is expected to make an announcement regarding policy after their monthly meeting in late December and the official minutes will be released shortly after.
