Fed vice-chair still sees two more rate hikes this year: CNBC

Business Times - Rueters - 22 April 2017

[NEW YORK] The US Federal Reserve remains on track for two more interest rate increases this year despite some weak recent economic data including a drop in inflation, Fed Vice-Chair Stanley Fischer said on Friday. "We're feeling that way. So far I haven't seen anything to change that," he said on CNBC when asked whether two more policy tightenings in 2017 were appropriate, adding the Fed is "not tied to" that plan.

Mr Fischer also dismissed speculation that US President Donald Trump's comments on the dollar would sway Fed policymaking, and warned that France's election on Sunday could raise another question mark over an improving world economy.

The median Fed policymaker forecast in mid-March, when the US central bank last tightened monetary policy, was for two more rate increases by year end.

Weaker-than expected-readings on domestic growth, monthly inflation and retail sales in recent weeks have reinforced the notion that the US economy slowed in the first quarter, while investors are also questioning how realistic Mr Trump's stimulus plans are.

Mr Trump's comments last week, in which he said the US dollar was "getting too strong" and suggested that Janet Yellen could serve another term as Fed chair, helped reduce market expectations to only one more rate hike this year. Prior to those comments being published, traders at CME had expected two more hikes in 2017.

Addressing Mr Trump's comments on the currency, Mr Fischer, whose term as vice chair ends next year, said: "We do not take a particular statement by even a president into account in making our decisions on the interest rate." He noted that a recently depreciated dollar, which generally benefits US exporters, "has been of some help" to the US economy even while "that has not been part of our plan."

Overseas economic surprises, such Britain's vote to leave the European Union last year, have delayed the US central bank's tightening plans. The latest wild card is France's first-round election on Sunday in which some presidential candidates oppose the country's participation in the EU.

"Considering that the Franco-German partnership is the absolute centre, and a vital part, of the European project, that would be a very big thing and it would be very hard to know how it would work out (given) you'd be entering a very unknown world," Mr Fischer said of the vote. "We pay attention to what happens abroad," he added. "We think about what impacts it will have on us."