Fed officials say global slowdown could push back US rate hike

Credit: Reuters/Joshua Roberts

U.S. Federal Reserve Vice Chair Stanley Fischer participates in a discussion on the global economy during the World Bank/IMF Annual Meeting in Washington October 9, 2014.

'The normalization of our policy should prove manageable,' Fed Vice Chairman Stanley Fischer said in an address at the International Monetary Fund's annual meeting. 'We have done everything we can, within the limits of forecast uncertainty, to prepare market participants for what lies ahead.

'In determining the pace at which our monetary accommodation is removed, we will, as always, be paying close attention to the path of the rest of the global economy and its significant consequences for U.S. economic prospects.'

Yet he also acknowledged the difficulties posed as the Fed tries to end years of accommodative monetary policy, noting that increased concern about world economic growth could change how the U.S. central bank reacts in coming months.

'If foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise,' Fischer said.

The Fed is expected by the middle of next year to approve its first interest rate increase since 2006, a move to 'normalize' monetary policy after years of crisis fighting. Large developing nations like India and Brazil have been concerned at the global fallout from rising rates, just as they earlier criticized the Fed's quantitative easing policies as a 'currency war' that caused a fast increase in their currency values.

Some urged the Fed during IMF meetings this week to proceed cautiously.

Fischer, born in what is now Zimbabwe and a former head of the Bank of Israel, has become a key Fed spokesperson on international issues, and said in the keynote IMF address that he felt the Fed's crisis programs have on the whole benefited the rest of the world.

'Estimates imply that the net effect on foreign economies appears to be both modest in magnitude and most likely positive, on net, for most countries,' Fischer said of Fed policies that pumped trillions of dollars onto global markets.

In addition, he said U.S. central bank officials have given ample time and clear signals about their intentions, providing other national governments and investors plenty of time to prepare for a shift in policy.

The Fed is 'going to great lengths to communicate policy intentions and strategies clearly. Given this, markets should not be greatly surprised by either the timing or the pace of normalization,' Fischer said.

(Reporting By Howard Schneider; Editing by Andrea Ricci)

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