Fischer Pleased by US Employment Data

Stanley Fischer, an economist and the vice chair of the US Federal Reserve stated on Wednesday that that policy makers should be concerned about the apparent “sizable decline” in the so-called natural rate of interest in recent years, which could make the economy more vulnerable to adverse shocks that render traditional monetary policy ineffective. In more recent data releases Fischer also stated that the latest jobs report was close to “Goldilocks number”, despite the absence of any comment aimed at monetary policy, the stage is however quite set for a very modest pace of tightening.

The Bureau of Labor Statistics stated on Friday that the U.S. economy recorded a growth of 156,000 in its jobs data last month, as the unemployment climbed higher to 5%. The report missed economist projections for 176,000 new jobs and the jobless rate to hold at 4.9%, according to Thomson Reuters. Despite the jobs data coming in below expectations, Fischer said the numbers are "fully consistent" with a declining trend in unemployment. He said the economy has been remarkably successful in reducing joblessness.

"Unemployment is somewhere very close to the natural rate. I think we're close to full employment," Fischer said at the Institute of International Finance's annual membership meeting in Washington, D.C. Fischer said there continues to be low investment because of both an "air of uncertainty" and declines in oil prices. "People aren't excited about growth prospects," he said. The Fed vice chairman also stated that he feels productivity growth will improve "at some point," but it isn't clear how strong that recovery will be.

Fischer also commented that the participation rate went up and the unemployment rate went up and those two things are fine. He also commented on the outlook for investment, which has been generally lackluster. According to Fischer, confidence has to be turned on for people to want to invest and the Fed was still waiting for that to happen. ‘It will happen at some point, but precisely when is unknown’. He added that people aren’t excited about growth and that animal spirits are not there.

The comments overall suggest no urgency to raise rates from the Fed’s perspective and subdued investment is clearly an important factor behind the overall very cautious stance by the central bank. The most likely outcome is still for a small rate increase at the December meeting unless there is major data or market dislocations before then.