Fischer’s Fed Comments Raise Hope for the USD

Major uptick perceptions are being shown by one of the Fed’s top policy makers who has recently revealed that the Federal Reserve is on the verge of meeting both its targets for the US Economy. Stanley Fischer, the vice-chairman of the Federal Reserve’s Board of Governors, stated that core inflation was now within “hailing distance” of the central bank’s target of 2%, with employment in the US also rising “impressively” since its struggle in 2010.

This shows a more hawkish end of the argument among the permanent members of the rate-setting Federal Open Market Committee currently being held by Mr Fischer. He also failed to answer the question of when the Fed should next raise short term rates in his Aspen, Colorado speech, but he is however confident that his assessment will attract the scrutiny of traders looking for a definitive appearance of the US policy makers who currently stand divided.

“We are close to our targets. Not only that, the behaviour of employment has been remarkably resilient,” Mr Fischer said.

Mr Fisher also explained the many obstacles that the US have had to contend with in the past 2 years, which have included, the confusions stemming from China’s exchange rate policy, the Greek debt crisis, spates of wild volatility in the markets, the 20% rise of the trade-weighted dollar, the outcome of UK referendum and the disappointing release figure seen in the job growth for May 2016.

 “Yet, even amid these shocks, the labour market continued to improve: employment has continued to increase, and the unemployment rate is currently close to most estimates of the natural rate,” Mr Fischer said. “I believe it is a remarkable, and perhaps under-appreciated, achievement that the economy has returned to near-full employment in a relatively short time after the Great Recession, given the historical experience following a financial crisis. That said, one of the disquieting developments of recent years is the sharp slowdown in US productivity growth. In the second quarter labour productivity recorded its third consecutive quarterly drop — the first time such a string of declines has happened since 1979”.

Mr Fischer also explained that there has been a noticeable increase in the rate of output per hour by 1.25% a year on average from 2006 to 2015, compared with its long-run average of 2.5% from 1949 to 2005. That slowing was a “massive change” and if it were to continue, there would have implications for employment, broader economic policy and wage growth.

While market participants see Fischer’s comments as a green for the dollar, some analysts believe that Fischer is simply trying to make things appear that way.

Daniel Thornton, a former St. Louis Fed research economist who now works independently explains that, while reading Fischer’s speech, “you would say they are ready to move, It seems that he is trying to hint in that direction, but I don’t think they will do anything before the election” in November.