Federal Reserve Vice Chairman Stanley Fischer said on Friday the central bank looked most likely to raise interest rates in June or September, although economic developments might warrant different timing for liftoff.
"I don't think there is an emphasis on June instead of September" Fischer told a monetary policy forum in New York. He added that judged by the views of Fed officials and investors "it seems those two months get the main weight of probability."
At the same time, he said, "things could happen" that could change those assumptions. "We will make a decision and we will make it on the basis of evidence."
Fed Chair Janet Yellen this week began to prepare the ground for an interest-rate increase this year for the first time since 2006, without saying that a move was imminent. In testimony to Congress, she signaled that the central bank might drop its pledge to be "patient," which would mean that rates could be raised at any meeting.
In an interview later with CNBC, Fischer said "there's a pretty high probability that this is the year" the Fed will tighten. He said the Fed is "very close" to its goal for full employment, and that inflation should move higher as the impact of low oil prices dissipates.
"We've gotten used to thinking about a zero interest rate as normal," he said. "It's far from normal."
Fischer was speaking during a panel discussion with European Central Bank Vice President Vitor Constancio and Bank of Japan Deputy Governor Hiroshi Nakaso. The two central bankers voiced optimism that they're making progress in turning their economies around and fighting off the danger of deflation.
Thomas Costerg, an economist at Standard Chartered Plc in New York, said Fischer's comments helped flesh out Yellen's testimony before Congress.
"It's interesting that September is creeping into the debate. It suggests the Fed is in no rush," Costerg said. "Fischer leaves the impression the Fed is quite open-minded and in a data-watching mode."
Fischer said the Fed wouldn't raise rates in a mechanical manner, in a reference to the 2004-2006 period, when the it lifted borrowing costs in quarter-point steps for 17 consecutive meetings.
"I know of no plans to behave by following one of those deterministic paths for the next three years," Fischer said. "I expect that our interest-rate policy will continue to be data driven, and that interest rates will be set at each meeting on the basis of what the FOMC believes will best enable us to meet our dual goals" for price stability and full employment.
New York Fed President William C. Dudley sounded a note of caution in prepared remarks delivered earlier to The 2015 Monetary Policy Forum sponsored by the University of Chicago Booth School of Business.
"There are some reasons to be cautious in how early and fast one should raise short-term interest rates," he said, citing low inflation and "lingering headwinds" from the financial crisis.
Dudley's comments helped push Treasuries higher. The benchmark 10-year note yield dropped four basis points, or 0.04 percentage point, to 1.99 percent at 4:59 p.m. in New York.
At the same time, Dudley also said he was not convinced by the theory of secular stagnation, which argues the U.S. economy is trapped in a prolonged period of sub-par growth that will strand real rates persistently near zero.
Dudley's comments were in response to a research paper presented at the conference on the "new neutral" for long term interest rates. The report, co-authored by economists including Jan Hatzius of Goldman Sachs Group Inc. and Ethan Harris of Bank of America Corp., argued the Fed should delay its first rate increase and raise them more sharply thereafter.
Cleveland Fed President Loretta Mester, who also discussed the paper, said modern economic models do a good job of gauging the employment and inflation costs if the Fed raises rates too soon "but they are less likely to be able to quantify the costs of waiting too long."
