Fed Vice Chairman Stanley Fischer Speech at The Aspen Institute


They are close to their targets on inflation and full employment

“The Fed’s dual mandate aims for maximum sustainable employment and an inflation rate of 2 percent, as measured by the price index for personal consumption expenditures (PCE). Employment has increased impressively over the past six years since its low point in early 2010, and the unemployment rate has hovered near 5 percent since August of last year, close to most estimates of the full-employment rate of unemployment. The economy has done less well in reaching the 2 percent inflation rate. Although total PCE inflation was less than 1 percent over the 12 months ending in June, core PCE inflation, at 1.6 percent, is within hailing distance of 2 percent–and the core consumer price index inflation rate is currently above 2 percent. So we are close to our targets.”

Resilient employment figures

“…the behavior of employment has been remarkably resilient…Employment has continued to increase, and the unemployment rate is currently close to most estimates of the natural rate.”

…but slow labour productivity growth

“Turning briefly to recent developments, the pattern of high employment growth and low productivity growth that we have seen in recent years has continued this year..The combination of strong job gains and mediocre GDP growth has resulted in exceptionally slow labor productivity growth.”

We have good news and bad news

“Are we doomed to slow productivity growth for the foreseeable future? We don’t know.On the encouraging side, the technological frontier appears to be advancing rapidly in some sectors, and there are hints that the firm start-up rate is improving. On the more discouraging side, investment continues to disappoint–and so the current capital stock is smaller and embodies fewer frontier technologies than might otherwise be the case–and the productivity slowdown is a global phenomenon, suggesting that it may not be easily or quickly remedied.”

Look beyond monetary policy to boost productivity growth

“…monetary policy is not well equipped to address long-term issues like the slowdown in productivity growth. Rather, the key to boosting productivity growth, and the long-run potential of the economy, is more likely to be found in effective fiscal and regulatory policies.”