Evidence that the so-called natural rate of interest has fallen to low levels could mean the economy is stuck in a low-growth rut that could prove hard to escape, Federal Reserve Vice Chair Stanley Fischer said on Wednesday.
Speaking to a central banking seminar in New York, the Fed's second-in-command said he was concerned that the changes in world savings and investment patterns that may have driven down the natural rate could "prove to be quite persistent...We could be stuck in a new longer-run equilibrium characterized by sluggish growth."
As a result, he said, central bankers may face a future where the short-term interest rates set by policymakers never get far above zero, and the unconventional tools used during the financial crisis become a "recurrent" fact of life.
"Ultralow interest rates may reflect more than just cyclical forces," Fischer said, but "be yet another indication that the economy's growth potential may have dimmed considerably."
Fischer's remarks did not address current Fed policy or interest rate plans.