A soft US housing recovery and weak labour force participation are two reasons for disappointing global growth, and this could be a long-term phenomenon, US Federal Reserve vice-chairman Stanley Fischer said.
His comments reflect continuing concern about the economy that has fuelled debate over whether the Fed should move sooner than expected to raise interest rates, despite solid job growth and strong gross domestic product expansion in the US, the Financial Times reported.
“This pattern of disappointment and downward revision [in growth] sets up the first, and the basic, challenge on the list of issues policymakers face in moving ahead: restoring growth, if that is possible,” Fischer said on Monday in a speech in Stockholm. “It is also possible that the underperformance reflects a more structural longer-term shift in the global economy, with less growth in underlying supply factors.”
The US economy has for six months added more than 200,000 jobs per month. But the labor force participation rate has remained disappointing, coming in at 62.9 per cent last month.
The Fed recently revealed that the rate-setting Federal Open Market Committee believed that labor resources were being underutilised and there was more capacity for improvement, which could spur it to wait for more progress in the jobs market before it raises interest rates.
Outside the US, the recoveries of advanced economies had been “well below average”, while performance in emerging markets, especially in Asia, is sharply down. The challenge for policymakers is separating the “cyclical from the structural, the temporary from the permanent”, Fischer said.
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