U.S. Federal Reserve Vice Chair Stanley Fischer reiterated Saturday that the Fed has confidence that the persistently low inflation will be back to the 2-percent target as factors holding down the prices have begun to fade.
Speaking at the Fed's policy summit held in Jackson Hole this week, Fischer did not outline the specific timetable for the first interest rate hike by the Fed since the outbreak of the global financial crisis. But he did offer more clues of the Fed's mindset in how it is looking at the ultra-low inflation.
He noted that the falling oil prices, rising dollars and ongoing economic slack are factors behind the low inflation, but he contended that the lower oil prices are temporary, and with inflation expectations apparently stable, there are reasons to expect a gradual reduction of slack to be associated with less downward price pressure.
He admitted that a higher value of the dollar passes through to lower import prices, which hold down U.S. inflation. "It is plausible to think that the rise in the dollar over the past year would restrain growth of real GDP through 2016 and perhaps into 2017 as well," he said.
While some effects of the rise in the dollar may be spread over time, the sharp fall in oil prices and slack in the labor market has continued to diminish. "We might therefore have expected both headline and core inflation to be moving up more noticeably toward our 2 percent objective," he said.
"In making our monetary policy decisions, we are interested more in where the U.S. economy is heading than in knowing whence it has come," he said.
"At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual," he added.
He underpinned the necessity for the Fed to proceed cautiously in normalizing the stance of monetary policy, and reiterated that the entire path of interest rates matters more than the particular timing of the first increase.
Debates emerged within the Fed about liftoff timing. New York Fed President William Dudley said on Wednesday that the prospect of a September rate hike "seems less compelling" than it was only weeks ago.
But Fischer told U.S. media on Friday that It is too early to determine if the recent market turmoil has made a September rate hike more or less compelling.