Federal Reserve Bank of Dallas President Richard Fisher said he believes the timing has moved up for the first main interest rate increase from close to zero because of a strengthening economy and higher inflation.
“It would seem to me and I have been arguing this that the date of so-called liftoff has been moved forward,” Fisher said today in a CNBC interview. “I believe personally we have moved that forward significantly,” possibly as soon as “sometime early next year,” he said.
Fisher voted for the Fed’s decision this week to trim monthly bond buying by $10 billion to $25 billion and to keep interest rates low for a “considerable time” after ending purchases. Philadelphia Fed President Charles Plosser dissented, objecting that the interest rate guidance is “time dependent” and doesn’t reflect “considerable economic progress.”
Fisher today cited “very important” changes in the Federal Open Market Committee’s July 30 statement, including a comment that inflation moved closer to the panel’s 2 percent goal. “I am very pleased at where we seem to be moving.”
Fisher spoke before a Labor Department report showed U.S. employers added more than 200,000 jobs in July for a sixth straight month, the longest such period since 1997. Payrolls rose by 209,000 and the jobless rate climbed to 6.2 percent from 6.1 percent as more people entered the labor force.
“There is a more robust labor market,” Fisher said. While “it’s not robust enough,” the job market is “moving in the right direction.”
The Dallas Fed chief said a report yesterday showing the employment cost index rising in the biggest gain since the third quarter of 2008 was a “good number” and “very important” in showing wage gains.
The FOMC said in its statement that it sees a “significant underutilization of labor resources,” even as the unemployment rate has fallen more rapidly than expected. Chair Janet Yellen has pointed to weaknesses in broader measures of the job market, such as underemployment and weak wage growth.
Allowing inflation to exceed 2 percent as a strategy to bolster employment would be a mistake, Fisher said. Eventually, the central bank would need to act against inflationary pressures. In the past, “we’ve driven the economy in a recession,” he said.
“We can’t overshoot and then try to correct,” Fisher said.
Plosser said today in an e-mail statement that he dissented on July 30 because the FOMC’s low-rate pledge is no longer appropriate after the economy “improved significantly,” with inflation and unemployment moving closer to the Fed’s targets.
“The funds rate setting remains well behind what I consider to be appropriate given our goals,” he said.