Home Economy Fed’s Fischer says first quarter doldrums only temporary and rate hikes can proceed

Fed’s Fischer says first quarter doldrums only temporary and rate hikes can proceed

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         Fed’s Fischer says first quarter doldrums only temporary and rate hikes can proceed

Weak growth in the U.S. economy in the first quarter will likely be temporary and interest-rate hikes should be able to proceed as planned, Federal Reserve Vice Chairman Stanley Fischer said Friday.

“Our tendency is to think this [weakness in the first quarter] is a transitory change and that growth will be around forecasts in the second quarter and the rest of the year,” Fischer said in an interview on CNBC.

Economists surveyed by MarketWatch expect growth to have decelerated to a 1% annual rate in the first quarter. The government will release an advance estimate of first-quarter GDP April 28. The surveyed economists expect a rebound to a 2.7% rate in the second quarter. The Fed does not forecast growth quarter by quarter, but has estimated growth for the entire year at a 2.1%.

The Fed has penciled in two more rate hikes this year and Fischer said Friday this remains his forecast.

“So far, I haven’t seen anything to change that,” he said.

He stressed the Fed is “not tied” to a total of three rate hikes this year and the actual pace of tightening depends on the data.

The Fed vice chairman said the central bank has yet to discuss when to begin to shrink its balance sheet.

“Minutes of the March meeting said that people expected we’d make the decision by the end of the year. Whether we’ll also start by the end of the year wasn’t discussed,” he said.

He said he expect the decision on a start-date sometime “in the next few meetings.”

Read: Fed’s Rosengren wants to shrink balance sheet so slowly that rate hikes can continue at same time

And: Is this a sign the Fed can shrink its balance sheet without causing a market tantrum?

Fischer said the recent dollar depreciation has been helpful for the domestic U.S. economy.

“That wasn’t part of our plan. That happened. It is useful for the U.S. economy. It is not essential. And if it goes away, we’ll respond appropriately,” he said.

The dollar

DXY, -0.09%

  rose slightly in the wake of Fischer’s interview.

The Fed vice chairman also sent a stern warning to the Trump White House and Republican Congress not to gut the Dodd-Frank law that tightened banking regulation in the wake of the financial crisis.

“We seem to have forgotten that we had a financial crisis which was caused by behavior in the banking and other parts of the financial system and it did enormous damage to the economy,” he said.

“Taking actions which remove the changes that were made to strengthen the structure of the financial system is very dangerous,” he said.

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