US economic outlook justifies proceeding with rate hikes, Fed's Fischer says

The outlook for economic growth in the US was maximised to the extent that the US central bank should continue tightening policy, a top official said.

In remarks prepared for a speech to be delivered at a central banking conference in Santiago, Chile, the vice-chairman of the US Federal Reserve, Stanley Fischer, said: "In my view, the prospects of a continued steady expansion in the U.S. economy are maximized to the extent that we proceed with a gradual removal of accommodation".

If the Federal Reserve did not do so then the risk was that it would be forced to raise rates more quickly further down the lines.

Fischer was "reasonably confident" that the so-called 'spill-over' effects from US monetary policy tightening would prove manageable for other economies.

However, should the US need to move more quickly then that could put greater pressures on other countries.

"While there are good grounds to expect that spillovers from U.S. monetary policy actions will be manageable for most of our trading partners, events may unfold differently than expected.

"To illustrate, a noticeably faster U.S. recovery would require a more rapid removal of U.S. accommodation and could exert noticeably larger spillovers abroad by putting more upward pressure on foreign interest rates and by inducing larger depreciations of foreign currencies," Fischer said.

Nonetheless, both the US and global economy was best served by the US "keeping its house in order".

He made no mention of the results of the recent US elections.

However, the main thrust of his speech was in fact on how foreign developments impacted on the US.

In that regard, the central banker said advanced economies overseas had yet to break out from the tepid growth they had experienced since the global financial crisis.

Meanwhile, growth in Latin America was zero in 2015 and emerging market economies had been hit by concerns surrounding China.

"These global developments materially slowed progress toward the Federal Reserve's employment and inflation objectives. The sizable appreciation of the dollar has been a substantial drag on U.S. exports over the past two years, and hence subtracted from economic growth.

"These developments have influenced the FOMC's decisions to maintain a very accommodative monetary policy longer than members of the FOMC had expected in 2014 and through the end of 2015."