Monetary Policy Should Be Transparent

Monetary policy must take a back seat to fiscal and regulatory measures in the struggle to get the global economy out of its low-interest-rate doldrums, said Federal Reserve Vice Chairman Stanley Fischer, on Monday, MarketWatch reported. Interest rates are not only near historic lows in the US, but also in the eurozone, the UK and Japan, Fischer noted in a speech at a conference in Brazil. Although central bankers often talk about the dangers of high interest rates, too-low interest rates are a worry because, in part, it suggests “that the growth potential of the economy may be limited,” Fischer said. In addition, low rates can raise financial stability concerns as investors reach for yield. Low rates are fostered by slower trend growth, aging populations and weak investment, Fischer said. Tax, spending and rules for business are better tools to boost productivity growth and the longer-run potential of the economy, he said. “This statement is true not only in the US, but around the world,” he said. Interest-rate policy is not “irrelevant”, but should focus on being “transparent” and “sound”, he said.