×

Fed's Fischer avoids rate debate, makes case for free hand in policy

Fed Vice Chair Stanley Fischer cautioned against binding the central bank to rules when it comes to making decisions on monetary policy.

His speech on Friday, however, avoided any direct comment on monetary policy at a time when most of the market expects the central bank to approve a rate hike later this month.

Fischer's comments instead went to a philosophical — and political — question likely to come up in the days ahead regarding the Fed's deliberation process and ultimately why it chooses to act. A movement afoot in Congress seeks to tie the Fed to policymaking that adheres to rules, or to explain itself when choosing to deviate from selected yardsticks.

History has shown that policy is more efficient when committees deliberate rather than stick to specific triggers for policy, Fischer said in a speech at the U.S. Monetary Policy Forum in Chicago.

"Committees and rules each have their advantages. Committees embody a wider range of information and have a capacity for innovation," he said in his prepared remarks.

Rules have their place, he added, but should be employed as part of a discussion, not as the last word, for critical policy decisions.

"Rules can simplify central bank communications, a particularly important feature in forward-looking models of the economy," Fischer said.

"Putting it all together, committees are, on average, likely to make better monetary policy decisions than individuals — an assertion that has received support from academic experiments in which undergraduate students played a part," he added.

Drumbeat growing for rate hike

The comments come at a time when Fischer's Fed colleagues have been fairly open about the likelihood of a March rate hike. Those speakers included Fed Gov. Lael Brainard, a reliable dove on rates who this week make remarks widely construed as open to tighter policy. Brainard also is considered a close ally of Fed Chair Janet Yellen, who also is scheduled to speak Friday.

Though the market a week ago had been pricing in a low chance for a move this month, the chances rose substantially this week amid expectations that policy changes from the Trump administration would spur growth. Most recently, the CME indicated a 77.5 percent chance of a hike at the March 14-15 meeting.

However, members also are sticking to the narrative that future moves will happen slowly and remain dependent on economic data. Fischer's comments were further indication that officials prefer to be given a free hand on deciding the future policy path.

In making the case against a strict rules-based policy, he said the economy is "very complex" and can defy models; that it changes more quickly than models can adapt; and that individuals bring experience that models can't replicate.

"All of these factors and more recommend against accepting the prescriptions of any one model, policy rule, or policymaker," Fischer said.

Watch: Fed policy inflection point