Fed rate hike 'widely expected' this year, Fischer says

[NEW YORK] The Federal Reserve is"widely expected" to begin raising US interest rates this year, with policymakers deciding on subsequent policy tightening or loosening on a meeting-to-meeting basis, the Fed's second-in-command said on Monday.

Fed Vice Chair Stanley Fischer cited significant economic progress and a labor market that was nearing full employment. In an upbeat speech to the Economic Club of New York, he did however mention that the strong dollar may offset some benefits of monetary accommodation.

"It is widely expected that the rate will lift off before the end of this year," Mr Fischer, a close ally of Fed Chair Janet Yellen, said in prepared remarks.

Liftoff "likely will be warranted before the end of the year (and) should occur when the expected return from raising the interest rate outweighs the expected costs of doing so," he added.

The Fed set the stage for a rate hike following a policy meeting last week. However, it kept investors guessing on the timing when it published cautious forecasts for economic growth, inflation, and for the expected path of hikes.

Mr Fischer said the tightening would come "when there has been further improvement in the labor market and we are reasonably confident that inflation will move back to our 2 per cent objective over the medium term."

He added that a smooth series of future rate rises "will almost certainly not be realized, because, inevitably, the economy will encounter shocks."

He stressed that the Fed would be considering moving its key policy rate "up and down" in the future.

REUTERS