Fed's Fischer Says Better Fiscal and Regulatory Policies Could Improve Productivity
August 21 2016 - 10:10PM
Dow Jones News
Federal Reserve Vice Chairman Stanley Fischer raised concerns
Sunday about the U.S. economy's longer-term prospects and said more
public investment, along with regulatory changes, could help boost
flagging productivity numbers. But he was more optimistic about the
economy's short-term outlook.
In a Sunday morning speech in Aspen, Colo., the Fed's second
highest-ranking official called for more spending on infrastructure
and education and adjustments to regulations to encourage private
investment.
"The key to boosting productivity growth, and the long-run
potential of the economy, is more likely to be found in effective
fiscal and regulatory policies," he said.
Productivity improvements are necessary for better long-term
economic growth and increases in wages and living standards. After
rising rapidly during the internet boom of the late 1990s,
productivity, defined as the output per hour worked, has slumped
recently for reasons that aren't well understood.
The U.S. recorded productivity decreases for the past three
quarters, the longest such stretch since 1979.
Mr. Fischer said productivity grew an average 1.25% annually
between 2006 and 2015, well below the 2.5% annual growth rate
between 1949 and 2005.
"A 1.25 percentage point slowdown in productivity growth is a
massive change, one that, if it were to persist, would have
wide-ranging consequences for employment, wage growth and economic
policy more broadly," he said.
Economic growth has been tepid even though employers have been
adding jobs at a rapid clip. The U.S. economy posted a 1.2%
annualized growth rate in the second quarter, but the unemployment
rate remains low.
Productivity has become a top preoccupation for Fed officials.
Fed Chairwoman Janet Yellen has said lower productivity growth
could be curbing the economy's long-term growth potential and the
central bank's ability to raise interest rates.
Economists are divided over the causes of the productivity
slowdown. It is also unclear when, or whether, productivity will
pick up again.
In his speech, Mr. Fischer echoed the remarks of other policy
makers, including Ms. Yellen, who say more public investment is
needed to spur productivity and economic growth. But a sharply
divided Congress and a bitter presidential election make such
investment unlikely, at least for now.
Despite his worries about the economy's long-term prospects, Mr.
Fischer was more upbeat when describing its short-term
performance.
The U.S. has weathered potential shocks such as the U.K's vote
in June to leave the European Union, a Greek debt crisis and the
slowdown in China without seeing a major hiring slowdown. And
inflation is within "hailing distance" of the Fed's 2% target, he
said.
"We are close to our targets," he said.
He also said he expected economic growth to "pick up" in the
coming quarters.
Mr. Fischer's speech fits with other recent statements by Fed
officials, many of whom have been encouraged by the economy's
recent performance even though they express increasing concern
about its long-term prospects. Those longer term worries are likely
to be a major topic of conversation this week at the Fed's annual
symposium in Jackson Hole, Wyo.
Last week, San Francisco Fed President John Williams suggested
redrawing the central bank's targets to deal with a long-term
growth slowdown while simultaneously saying the economy is ready
for another increase in interest rates.
Mr. Fischer didn't comment on the prospects of a rate
increase.
Write to David Harrison at david.harrison@wsj.com
(END) Dow Jones Newswires
August 21, 2016 21:55 ET (01:55 GMT)
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