Fed’s Fischer: We could be stuck in a new longer-run equilibrium - Rabobank

Michael Every, Head of Financial Markets Research at Rabobank, notes that the Fed Vice Chair Fischer has stated “we could be stuck in a new longer-run equilibrium” -- to which the market says “Duh!” -- where “worrisome” low natural rates “may” hurt financial stability by causing investors to reach for yield -- to which the market says “Duh!” again, more loudly.

Key Quotes

“However, Fischer, who talked as if these “ultralow” rates were invaders from outer space rather than something he was directly responsible for in at least one country, also suggested things may change on the rates front if we see a combination of improved infrastructure, better education, more private investment, and effective regulation to promote faster growth. That’s quite the wish-list. Perhaps the Fed should have told the government those steps were what was required to juice GDP back in 2009-10, rather than slashing rates to zero to force a reach for yield, and throwing rounds of QE at us to encourage it further? In short, we have another central banker saying ‘Never mind high public debt, spend more!’.”