Global market turmoil could hit US growth: Fed’s Fischer

“In addition, 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”.

The U.S. economy could suffer, with inflation remaining too low, if recent volatility in financial markets persists and signals a slowdown in the global economy, the Federal Reserve’s second-in-command said on Monday.

“It’s working more than I can say I expected in 2012”, he told the Council on Foreign Relations in NY.

In its annual stress test for 2016, the Fed said it will assess the resilience of big banks to a number of possible situations, including one where the rate on the three-month U.S. Treasury bill stays below zero for a prolonged period.

In December 2015, the Fed raised the federal funds rate for the first time in seven years by 1/4 percentage point to 1/4 to 1/2 percent.

Nevertheless, it is “another sign that the Fed would not be entirely adverse” to reducing its target rate below zero should economic conditions warrant, he said.

Fischer also argued that a “modest” drop in unemployment below its current 5.0 percent level, which is around the Fed’s target, would be “appropriate” to help under-employed workers and to boost inflation, which is 1.4 percent by the Fed’s preferred measure.

Fischer noted that he could not explain what the Fed will do at its next meeting because they “simply do not know”.

If you thought 2015 was a insane year for fluctuating interest rates and all the inconsistent economic data being fed to us about the state of the U.S. economy, then brace yourself.

He acknowledged that oil prices and imported products “fell lower and for longer than expected”.

The Fed’s balance sheet includes its holdings of long-term bonds that it bought to try to help reduce borrowing rates.