December 2, 2014 / 1:40 PM / 5 years ago

Fed's Fischer: Drop in inflation would require delay in rate hike

U.S. Federal Reserve Vice Chair Stanley Fischer participates in a discussion on the global economy during the World Bank/IMF Annual Meeting in Washington October 9, 2014. REUTERS/Joshua Roberts

WASHINGTON (Reuters) - U.S. Federal Reserve vice chair Stanley Fischer said that if inflation fails to take hold the central bank will need to leave rates at their current low levels, delaying lift-off from the zero bound where they have remained for six years.

“If inflation is really heading south we will have to do that,” Fischer said at a conference sponsored by the Wall Street Journal.

Weak global demand, low oil prices, and other factors are expected to weigh on U.S. inflation and delay the Fed’s progress towards its 2 percent annual inflation goal. The Fed still expects U.S. inflation to rise gradually, and Fischer said that the global forces holding down prices are “not the main driver for the U.S. economy.”

Still, he said, if U.S. inflation does not show signs of responding, the Fed will have to act accordingly and hold off on any rate increase.

“We have said we are data driven,” Fischer said. The Fed is currently expected to approve an initial interest rate increase in the second half of next year.

Editing by Chizu Nomiyama

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