Stanley Fischer warns lower productivity growth and labour force participation rates are now permanent features of the economy.
The US and global recoveries have been "disappointing" so far and may point to a permanent downshift in economic potential, US Federal Reserve vice-chair Stanley Fischer said on Monday.
In an overview of the years since the 2007-2009 financial crisis and recession, Fischer said a slowing of US productivity, declining labour force participation and other factors may have scarred the United States' ability to generate economic growth.
The same thing may be happening for different reasons in Europe, large emerging economies such as China, and elsewhere, he said, forcing central bankers to recast their understanding of inflation, employment and growth in general.
"The global recovery has been disappointing," Fischer said in prepared remarks for a speech to an economic conference in Sweden. Long-run annual growth in the United States may now be perhaps as low as 2%, a full percentage point below the estimate of Fed policymakers as recently as 2009, he said.
Some of that may represent temporary factors that will change if, for example, the US housing market improves.
"But it is also possible that the underperformance reflects a more structural, longer-term shift in the global economy," he added.
Fischer, the influential new number two at the US central bank, outlined the challenges facing monetary policymakers as they try to navigate the end of the unconventional methods used to support the economy in recent years.
It remains uncertain, he said, whether lower productivity growth and lower labour force participation rates are now permanent features of the US economy – complicating estimates of growth, inflation, and the amount of slack in labour and product markets.
The more than $4tn (£2.3tn) in assets now held on the Fed's balance sheet, he said, will also make it more difficult to manage short-term interest rates. He added that he believes the Fed has developed a suite of tools, such as the interest paid on overnight bank reserves, that will be successful in maintaining a target rate.
Since the crisis, central bankers have also become more concerned with what role they should play in ensuring financial stability, an issue where Fischer has been an outspoken advocate of aggressive central bank involvement.
He said macroprudential and regulatory tools should be a country's first line of defence for financial stability, regardless of whether those measures are employed by the central bank or other agencies. The blunter tool of monetary policy – raising interest rates to slow rapid growth, for example – should be a last resort, he said.
But he acknowledged there were challenges.
If, for example, authority over some regulations rests with other agencies, the central bank may be left trying to lobby for their use. In the United States, the Fed is among the agencies represented on the Financial Stability Oversight Council, for example, but power is distributed among several agencies.
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3 comments:
The strongest policy would be to put all you pirate tyrants in jail and liberate America and our people and economy from your oppression. Watch everyone boom after that. We, the 99% are the producers. Just get the fuck out of our way assholes.
Isn't he supposed to be losing his job ?
This is more propaganda. When the big bank bailout happened and they all got hundreds of billions of dollars, they didn't loan any money out to any businesses or any people. They kept it for themselves (out of the American taxpayer's money) They wanted to bring America down to a third world country status so they could control them. The reason that nothing is working in the economy is because this is a planned failure which is being run by a bunch of secret society NWO "central bankers." They used Clinton to shove through NAFTA and paid all of the big corporations to take their manufacturing overseas which put American manufacturing out of business. Now all you have available to you is a bunch of second-rate inferior garbage. Well what this fella is saying in this article is totally not true. We can create American manufacturing again in our country and we will have quality products again instead of inferior trash. The problem is the leadership positions in this country are clogged with inferior-thinking, greedy for their own gain men and women. We need to make these people leave and install the correct people who actually care about the people and about this country. I recall Erasmus saying he had received training from the top economists to ever teach this in the whole world, and that he could turn this economy around in a very short amount of time.
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