Federal Reserve Vice Chairman Stanley Fischer said the U.S. consumer is making a comeback and economic growth is improving, without indicating what that means for the timing of interest rate increases.
The latest monthly data on real consumption “provide welcome evidence that consumer demand is rebounding,” Fischer said in remarks prepared for delivery at a closed-to-media roundtable of African central bankers at Oxford University on Tuesday. “Economic activity likely expanded at an annual rate of about 2.5 percent in the second quarter.”
The economy contracted 0.2 percent in the first three months of the year, based on Commerce Department data, and estimates for the second quarter will be released July 30.
“Our policy will be data dependent, and the FOMC at upcoming meetings will weigh possible adjustments to the level of the target federal funds rate, based on its assessment of incoming data and the economic outlook,” Fischer said today. He also noted that the Federal Open Market Committee decided at its June 16-17 meeting not to include time-based guidance about when the policy change is coming.
Policy makers signaled at that meeting that a pickup in the economy is keeping the central bank on track to raise rates this year for the first time since 2006, though subsequent increases are likely to be more gradual than anticipated earlier.
Fischer today reiterated that rate increases will come gradually, assuming expected economic conditions hold, though he said inflation and employment data will ultimately determine the pace of policy tightening.
U.S. employers added 280,000 positions in May, the most in five months, while average hourly earnings accelerated to a 2.3 percent year-over-year pace, the fastest since August 2013. The June employment report will be released on Thursday. Inflation continues to run below the central bank’s 2 percent objective.
Fischer also discussed the potential for monetary policy spillovers for markets abroad, saying that “in an interconnected world, fulfilling the Federal Reserve’s objectives under its dual mandate requires that we pay close attention to how our own actions affect other countries.”
The Fed is working to minimize the likelihood of surprises and unnecessary volatility by communicating policy strategy clearly, he said.
Chair Janet Yellen told the post-meeting press conference in June that the Fed was “attentive” to the potential for international spillovers, though the Fed would chart policy that was appropriate for the U.S. and “we can’t promise that there will not be volatility when we make a decision to raise rates.”
Fischer, 71, was born in what is now Zambia and is a former Governor of the Bank of Israel. He served as first deputy managing director at the International Monetary Fund between 1994 and 2001.