Federal Reserve Vice Chairman Stanley Fischer believes that the Federal Reserve’s eventual rate increase, the first since 2006, will not damage the global economy, according to a Oct. 12 Wall Street Journal MarketWatch news report. Fischer said in a Oct. 11 speech at the International Monetary Fund’s annual meeting that a rate increase could trigger further bouts of volatility in international markets when the Fed first hikes, the normalization of the Fed’s policy should prove manageable for the emerging market economies.
Fischer also played down concern about the recent fall of the euro, which has fallen more than 8 percent against the dollar since the beginning of the year. “We were all surprised for how long the euro stayed as high as it did, so to turn around and say that terrible things are likely to happen — I think, what is happening now is reflective of the underlying strengths of the economy,” Fischer said.
There was a sharp selloff of emerging market currencies and assets last year after the Fed first publicly discussed the possibility of ending its bond-buying program, otherwise known as quantitative easing. Some experts, notably Reserve Bank of India Governor Raghuram Rajan, have worried publicly that the Fed could derail the global economy if it doesn’t look outward before it raises domestic interest rates.
Fischer said further in his speech that the Fed has been as clear as it can be about the future course of its policy course, and markets understand. “We think, looking at market interest rates, that their understanding of what we intend to do is roughly correct,” Fischer said. “It makes no sense for the Fed to telegraph its moves to emerging markets sooner. If anybody thinks our next move is a decline in the interest rate, they haven’t been reading.” he added.
Fischer believes the U.S. cannot ignore developments beyond its borders, especially given that the dollar is the primary international currency.
