Fed's Fischer: U.S. economy needs faster potential growth

May 19, 2016 11:34 AM

The United States requires faster potential economic growth in order to lift the long-run equilibrium interest rate, Federal Reserve Vice Chairman Stanley Fischer said on Thursday.

"What we need most, now that we are near full employment and approaching our target inflation rate, is faster potential growth," Fischer, the Fed's second-in-command, said in prepared remarks before an economics conference in New York.

He added it was critical to the future of the U.S. and global economies, and that more study should be devoted to developing policies that can influence the rate.

The so-called equilibrium real interest rate is the level of borrowing costs associated with stable inflation and full employment.

Assessing the long-run rate is key to Fed policymakers forecasting how much they will ultimately tighten policy. Lower potential long-run growth necessitates a lower equilibrium federal funds rate.

The Fed raised interest rates for the first time in a decade from near zero last December.

On Wednesday, the Fed surprised financial markets by signaling in the minutes from its last meeting that it may be ready to raise rates in June if the U.S. economy continues to strengthen.

Fischer said in March the Fed is not far from meeting its 2% inflation target.

About the Author