In public appearances this week, Janet Yellen’s two top lieutenants sounded like individuals who want to start raising short-term interest rates in the months ahead, despite mounting uncertainties about growth abroad and associated downward pressure on commodities prices.
I had a chance to interview Fed vice chairman Stanley Fischer at The Wall Street Journal’s CEO Council on Tuesday. Foreign demand “is not the main driver of the United States economy,” he noted. “If (U.S.) unemployment continues to decline, if the labor market continues to strengthen and if we see some signs of inflation beginning to increase, then the natural thing is to get the interest rate up. We call it normalization.”
“It is clear we are getting closer” to dropping an assurance that rates will stay low for a considerable time, he said. Mr. Fischer repeatedly emphasized his desire to get back to normal. “We almost got used to thinking that zero is the natural place for the interest rate. It is far from it,” he said.
It seems “normal” has nothing to do with the overall economy, it´s only about the level of interest rates!
As the chart shown in a previous post attests, for the past several quarters the economy is doing worse than terrible, what with NGDP persistently falling below the “uninspiring” lower trend level!