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Fed's Fischer says US inflation rate temporarily low while labor market is on a rebound

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August 11
9:03 AM 2015

Federal Reserve's Vice Chairman Stanley Fischer stated that although the US has achieved almost full employment, inflation is temporarily low.

In an interview on Bloomberg TV according to Wall Street Journal, Fischer said that statistics needs to drive the people in order to know where they are at the moment.

Federal Reserve set an annual inflation rate goal of 2 percent yet the price growth in the US has not reached the said target for three years plus.

Prices save energy and food, inflation gauge and the personal consumption expenditures price index as computed by the Commerce Department all rose from last year.

The good news is that the labor market is getting in better condition with payrolls reporting steady gains and unemployment rates held constant at 5.3 percent, just a little higher than what the Fed held as normal.

Fischer also blamed that the low inflation is mainly due to the decrease of the prices of oil and raw materials. These things, which Fischer asserts, will normalize some time and that the US can recover from this state of low inflation.

Fischer did not say a prediction on the Fed's increase rate although he said that the real issue with the situation is to have employment returning to more stable levels. The Federal Reserve has required the US central bank to look for stable prices and maximum employment through their dual mandate.

The Fed has maintained short-term interest rates at nearly zero since 2008 December although analysts say that the Fed will start to increase rates by September.

Inflation rate has a crucial role in checking the condition of an economy. Countries that experience very high inflation rates for long are expected to collapse anytime soon as it creates a drag on the economy. Low inflation rates, on the other hand, can mean that the Fed won't be able to increase its base interest rates.

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