Vice Chairman of the US Federal Reserve: The Fed Must Take Action to Maintain Order in International Capital Markets

In a lecture at the October 2014 Annual Meetings of the International Monetary Fund and the World Bank Group, the US Fed Vice Chairman Stanley Fischer discussed the role of the Federal Reserve in the global economy. Fischer pointed out that “even though the Fed’s statutory objectives are defined as specific goals for the US economy,” in “a progressively integrating world economy and financial system, a central bank cannot ignore developments beyond its country’s borders.” The Fed must therefore “devote significant resources to monitoring developments in foreign economies.”

Fischer emphasized that the US has an interest in improving global financial conditions because of their positive effects on the US economy. Therefore, he argued, the US monetary policies “were not beggar thy neighbor policies.” For the same reason, “in the normalizing of its policy, just as when loosening policy, the Federal Reserve will take account of how its actions affect the global economy.”

Fischer assured his mostly foreign audience that the Fed and other central banks “are going to great lengths to communicate policy intentions and strategies clearly.” He committed to “communicating our assessment of the economy and our policy intentions as clearly as possible.”

Moreover, Fischer stated that the Fed will remain alert to the impact of changing U.S. policies on other markets and react when needed: “if foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove [monetary] accommodation more slowly than otherwise.”

More generally, Fischer referred to the Fed’s responsibility to the global economy due to the fact that “the United States is not just any economy and, thus, the Federal Reserve [is] not just any central bank.” This global responsibility consists of, first, the effort “to keep our own house in order.” Second, this responsibility requires the Federal Reserve “seek to minimize adverse spillovers and maximize the beneficial effect of the U.S. economy on the global economy.” Finally, the Fed must take actions to “maintain order in international capital markets.”