First signs of inflation stirring may be apparent, Fed's Fischer says

The Vice-president of the US Federal Reserve indicated on Monday evening that he may be seeing the first signs that inflation was "stirring" in the country's economy.

Speaking at the annual National Association for Business Economics Economic policy conference, in Washington DC, Fischer added that unemployment in the US was in the vicinity of what economists term 'full employment'.

There were no plans at present to use negative interest rates, he added.

In the text of his speech Fischer concluded by saying: "Will the equilibrium interest rate remain at today's low levels permanently?" is also [a question the answer to which] we do not know."

Significantly, he pointed out how the answer to the above question would depend on "future policies, monetary and other, notably including fiscal policy".

Also delivering a speech on Monday evening, Fed governor Lael Branard argued for caution in assessing whether a tightening labour market would move inflation back to 2.0% soon, given the currently weak relationship between economic slack and inflation and the persistent, depressing effects of energy price declines and US dollar strength.

"Given weak and decelerating foreign demand, it is critical to carefully protect and preserve the progress we have made here at home through prudent adjustments to the policy path. Tighter financial conditions and softer inflation expectations may pose risks to the downside for inflation and domestic activity. From a risk-management perspective, this argues for patience as the outlook becomes clearer."

However, she described the recent step-up in price pressures, as measured by the deflator for personal consumption expenditures, observed in January, from 1.3% to 1.7% in terms of the year-on-year rate of increase, as a "noticeable step-up".