Fed's Fischer Says Better Fiscal and Regulatory Policies Could Improve Productivity

Federal Reserve Vice Chairman Stanley Fischer, shown in a photo from May, sounded upbeat about the short-term prospects for the U.S. economy. ENLARGE
Federal Reserve Vice Chairman Stanley Fischer, shown in a photo from May, sounded upbeat about the short-term prospects for the U.S. economy. Photo: Bloomberg News

Federal Reserve Vice Chairman Stanley Fischer called Sunday for better fiscal and regulatory policies that could help boost the U.S. economy’s flagging productivity growth rate and help the central bank avoid having to drop interest rates to near zero again.

In a speech at the Aspen Institute, Mr. Fischer expressed concern about the recent low rate of productivity growth, defined as the output per worker. Federal Reserve Chairwoman Janet Yellen has pointed to declining productivity growth as a possible explanation for the economy’s sustained period of slower growth and lower interest rates.

Mr. Fischer didn’t discuss the Fed’s next interest rate increase.

Over the long run, productivity is a major component for improvements in wages, living standards and economic growth. Its sluggish pace in recent years has been a vexing problem for policy makers but one they say they are not well-prepared to address. Mr. Fischer called on fiscal policy makers to make the necessary investments to boost productivity.

“While there is disagreement about what the most effective policies would be, some combination of improved public infrastructure, better education, more encouragement for private investment, and more-effective regulation all likely have a role to play in promoting faster growth of productivity and living standards—and also in reducing the probability that the economy and particularly the central bank will in the future have to contend more than is necessary with the zero lower bound,” he said.

At the same time, Mr. Fischer sounded upbeat about the short-term prospects for the U.S. economy, noting that employment growth has been solid and inflation, while below the Fed’s 2% target, is within “hailing distance.”

“I believe it is a remarkable, and perhaps underappreciated, achievement that the economy has returned to near-full employment in a relatively short time after the Great Recession, given the historical experience following a financial crisis,” he said.

Write to David Harrison at [email protected]


WSJ.com: US Business

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