Fed Vice Chair Fischer Has Made Very Clear Where He Sits On The Hawk-Dove Scale

Owl bird scaleREUTERS/Suzanne PlunkettAlberta, a Tawny Owl, perches on a scale

When Stanley Fischer advanced as the frontrunner to join the Federal Reserve as vice chair, there was some concern that he and Fed Chair Janet Yellen might butt heads.

But in a speech given earlier Monday in Stockholm, the now Fed Vice Chair confirmed pretty clearly where he sits on the the hawk-dove scale.

“So much for speculation that the new Fed Vice Chairman would become a Janet Yellen critic,” said Potomac Research Group’s Greg Valliere. “Fischer stated in a speech in Sweden this morning that U.S. and global recoveries are “disappointing,” and may have permanently lowered GDP potential. The media gives disproportionate coverage to a noisy band of Fed hawks, but the center of power at the Fed is firmly in the dovish camp.”

“With few exceptions, growth in the advanced economies has underperformed expectations of growth as economies exited from recession,” said Fischer in his speech titled “The Great Recession: Moving Ahead.” “Year after year we have had to explain from mid-year on why the global growth rate has been lower than predicted as little as two quarters back. Indeed, research done by my colleagues at the Federal Reserve comparing previous cases of severe recessions suggests that, even conditional on the depth and duration of the Great Recession and its association with a banking and financial crisis, the recoveries in the advanced economies have been well below average.”

Stanley fischerREUTERS/Yuri GripasStanley Fischer

Referencing the work of Carmen Reinhart and Ken Rogoff, Fischer warned “is also possible that the underperformance reflects a more structural, longer-term, shift in the global economy, with less growth in underlying supply factors.”

Fischer articulated his worries about tightening labour supply.

“The considerable slowdown in the growth rate of labour supply observed over the past decade is a source of concern for the prospects of U.S. output growth,” he said. “There has been a steady decrease in the labour force participation rate since 2000. Although this reduction in labour supply largely reflects demographic factors — such as the ageing of the population — participation has fallen more than many observers expected and the interpretation of these movements remains subject to considerable uncertainty.”

All of this seems to suggest that Fischer will continue to support the Yellen-Fed’s plan to keep interest rates low for a very long time.

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