Fed’s Fisher Warns About Low Rates Making Economy Vulnerable

Federal Reserve Vice Chairman Stanley Fischer on Monday warned of the dangers of low rates.

In prepared remarks for a speech at the Economic Club of New York, Fischer suggested that low rates can lead to longer and deeper recessions, making the economy more vulnerable.

He added they can also threaten financial stability, although the evidence so far doesn’t show a heightened threat of instability.

Fischer said the central bank has a limited ability to combat recessions because it does not control all the factors leading to depressed rates.

His remarks contrasts with those of Fed Chair Janet Yellen on Friday, when she suggested that the Fed may want to run a “high-pressure economy” with low interest rates.

Though Yellen said it’s useful to consider the benefits of such an economy, Fischer did not specifically relate his remarks to a preference for monetary policy.

The policymaking Federal Open Market Committee hasn’t approved an interest rate increase since December. However, pressure is building. Three FOMC members dissented at the September meeting, believing the committee should have raised it key funds rate a quarter-point.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza