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A top Federal Reserve official said Monday he did not know the central bank's next move, even as concerns about global outlook have grown and inflation continues to lag below expectations.
Fed Vice Chairman Stanley Fischer repeated that the central bank's policymaking committee continues to watch global economic developments. While he noted that the effects of recent market pain are difficult to gauge, he said the Fed would adjust its policy to economic and financial events.
"Increased concern about the global outlook, particularly the ongoing structural adjustments in China and the effects of the declines in the prices of oil and other commodities on commodity exporting nations, appeared early this year to have triggered volatility in global asset markets," he said in remarks prepared for the Council on Foreign Relations in New York. "At this point, it is difficult to judge the likely implications of this volatility."
Last week, the Fed's policy committee voted to keep its interest rate target unchanged after raising it in December for the first time in more than nine years. The Fed previously indicated it planned to hike four times this year, but market volatility has more traders betting the central bank will dial back its hiking plans.
A sustained drop in oil prices has helped to keep inflation below the Fed's 2 percent target and contributed to investor fears this year even as the labor market continues to recover. Stocks fell Monday as oil prices slid. The S&P 500 has fallen more than 5 percent this year.
Fischer, a voter on the Fed's policymaking committee, noted that global financial conditions could derail the global economy and slow growth in the United States. Oil price declines and continued strength in the dollar have kept inflation lower than previously expected, he added.
But Fischer stressed that he expects the oil price pressure on inflation to subside. He believes the labor market will continue to strengthen, and said policy remains accommodative even after the hike in December.
Manufacturing sector weakness and an initial read of 0.7 percent annualized GDP growth have have increased predictions of looming weakness in the United States. But others market watchers, including Goldman Sachs, have contended that stock selling this year and calls for a looming recession may be overblown.
But Fischer noted that similar periods of global economic weakness in the past have "left little permanent imprint" on the U.S. economy.
Answering questions after the speech, Fischer said that negative interest rates are working better than expected where central banks have used them. The Bank of Japan surprised markets last week by moving to negative interest rate policy, while the European Central Bank previously employed negative rates.