New financial
tools meant to help the Federal Reserve pull off its historic interest
rate hike last month have worked, easing some internal concerns at the
U.S. central bank, the Fed's vice chairman said on Sunday.
"One
possible concern about our unconventional policies has eased recently,
as the Fed's normalization tools proved effective in raising the federal
funds rate following our meeting two-and-a-half weeks ago," Stanley
Fischer, the Fed's second in command, told an American Economic
Association conference.
The Fed tightened monetary policy for the first time in nearly a decade last month. To lift rates from near-zero, it relied on a relatively new rate on excess bank reserves and on a lightly tested reverse repurchase (repo) facility to mop up some of the $2.6 trillion in excess reserves in financial markets.
The liftoff, on Dec. 17, boosted the U.S. policy rate into its new target range of 0.25-0.5 percent.
A key topic at the conference was the so-called equilibrium real interest rate: the level of borrowing costs associated with stable inflation and full employment.
The debate over this rate appears set to be a defining focus for the Fed in 2016, as policymakers seek to raise rates quickly enough to head off the threat of inflation but slowly enough to keep the recovery from losing steam.
Fischer said this equilibrium rate, which is key to forecasting by how much the Fed will ultimately tighten policy, is now around zero and is likely to remain low for the "policy-relevant future."
John Williams, the president of the San Francisco Fed, argued earlier in the day that the rate looks likely to stay near zero through at least the end of this year.
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| Federal Reserve Vice Chairman Stanley Fischer speaks during a televised interview during the Federal Reserve Bank of Kansas City's annual Jackson Hole Economic Policy Symposium in Jackson Hole, Wyoming August 28, 2015. |
The Fed tightened monetary policy for the first time in nearly a decade last month. To lift rates from near-zero, it relied on a relatively new rate on excess bank reserves and on a lightly tested reverse repurchase (repo) facility to mop up some of the $2.6 trillion in excess reserves in financial markets.
The liftoff, on Dec. 17, boosted the U.S. policy rate into its new target range of 0.25-0.5 percent.
A key topic at the conference was the so-called equilibrium real interest rate: the level of borrowing costs associated with stable inflation and full employment.
The debate over this rate appears set to be a defining focus for the Fed in 2016, as policymakers seek to raise rates quickly enough to head off the threat of inflation but slowly enough to keep the recovery from losing steam.
Fischer said this equilibrium rate, which is key to forecasting by how much the Fed will ultimately tighten policy, is now around zero and is likely to remain low for the "policy-relevant future."
John Williams, the president of the San Francisco Fed, argued earlier in the day that the rate looks likely to stay near zero through at least the end of this year.
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