1. Central banks follow the evolution of the Chinese economy. Even before the stock market of China began to plunge this week, the Federal Reserve of the United States discussed its position on a planned increase in interest rates for some time later this year. Many experts had forecast in September as the most likely time for the central bank to raise rates for the first time in nearly a decade.
At this point, we follow the evolution of the Chinese economy and their potential and actual effects on other economies even more closely than usual, "Fischer said in remarks prepared for central bankers at the annual conference in Jackson Hole, Wyoming.
China surprised world markets after the devaluation of the yuan, there are two weeks and then at the end of last week, data showed production in Chinese factories fell in August to its fastest pace in more than six years, raising fears of its economy slows to a rate much faster than expected pace.
needs of central banks to examine the overall state of the US economy, Fischer said, and "the impact of foreign economies on the US economy" as the Fed reached its decision on whether and how to change monetary policy.
the Fed is more interested in the case of the US economy is heading in knowing where it came from, Fischer said, adding that the central bank follows economic developments in the world and the United States to achieve our interest rate decisions.
2. The path of interest rates is more important than the particular time of the first increase. As global markets have witnessed several episodes of volatility this week, economists wonder whether the United States is strong enough to get away from interest rates to the level of crisis.
The Fed has a "dual mandate" of US inflation stabilization and achieve maximum employment. To achieve the goals of maximum employment and price stability the central bank, Fischer said the Fed will probably need to "exercise caution" in normalizing its monetary policy.
For for the achievement of our objectives, the full path of the particular interest rate questions over the timing of the first increase, "said Fischer.
There is just one more monthly unemployment reading before the next meeting of the Federal reserve on September 16 to 17 the financial markets reacted with mixed feelings to the July figures because the report does not fully solidify if the Fed would actually be a rate hike in September, or hold later.
the employment report is due in August to Friday.
3. the Fed should not "wait until 'that inflation is back to 2 percent to start tightening. " Fischer always left the door open for an increase in the Fed rate in September.
Fischer warned of delaying action to tighten monetary policy until the US employment and inflation are meeting the objectives of the central bank would risk overheating the economy. However, data released Friday showed the preferred inflation gauge of the Fed, the price index for personal consumption expenditures, remained below 2 percent inflation target by the Fed for 39 consecutive months .
Although Fischer said the impact of a strengthening US dollar on inflation start to disappear, with the sharp decline in oil prices, which have lost 60 percent of their value in the last year.
Given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher that the forces keeping inflation dissipate further " said Mr. Fischer.
the speech comes after the Federal Reserve Bank of Atlanta President Dennis Lockhart said on Monday that it continues to expect a rate hike this year, but warned a dollar more safe, lower Chinese yuan and the decline in oil prices could complicate the prospects of the central bank in the future. Meanwhile, the US official of the central bank William Dudley, president of the Federal Reserve bank of New York said Wednesday, Sept. 1 interest rate increase seems "less compelling."
IBTimes
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