By Joshua Mitnick
HERZLIYA, Israel---Federal Reserve Vice Chairman Stanley Fischer
said Monday the central bank expects to follow a "gradual and
relatively slow" trajectory of short-term interest-rate increases
over the next three to four years to bring borrowing costs back to
"normal" levels.
Mr. Fischer said observers focus too much on when the Fed will
start raising its benchmark short-term rate from near zero, and
instead should think more about where interest rates are headed
over time. He said Fed economists expect the rate will reach from
3.25% to 4% in three to four years.
"There is so much importance given to the first move. But I
think it's misleading," said Mr. Fischer in a lecture at the
Interdisciplinary Center Herzliya, a college in a suburb outside
Tel Aviv.
Mr. Fischer, who served as chief of Israel's central bank for
eight years before becoming the No. 2 U.S. central banker, said the
coming Fed rate increases "will be a gradual process."
He said it would not be like the relatively rapid and
predictable path of Fed rate increases from 2004 to 2006, when the
benchmark rate rose by 0.25 percentage point at each of 11
consecutive monetary policy meetings.
His comments echoed those of Fed Chairwoman Janet Yellen, who
said Friday the central bank is on track to raise interest rates
this year but will likely proceed cautiously because the job market
hasn't fully healed, inflation is low and growth has again
disappointed.
The Fed has held its benchmark federal funds rate near zero
since late 2008. Mr. Fischer noted many investors and economists
think the central bank is likely to start raising it in
September.
He said the timing for the first rate increase would depend on
the pace of economic growth, he said. "Our process is not
date-determined. They are data-determined," he said "We will wait
and see what happens. If the economy is moving slow we'll wait. If
fast, we'll do it earlier."
He said the frequent references to the coming first rate
increase as "liftoff" was something of a misnomer. "You say liftoff
and you think of rockets" that go into orbit after 10 seconds, he
said. "That's not what we're talking about."