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Fischer: Fed eyes China closely, Sept watch

By Greg Robb , MarketWatch
The Federal Reserve is following developments in the Chinese economy "even more closely than usual" to understand how they might impact the outlook in the U.S., Stanley Fischer , the vice chairman of the U.S. central bank, said on Saturday.
"In making our monetary policy decisions, we are interested more in where the U.S. economy is heading than in knowing whence it has come," Fischer said in a speech at Jackson Hole, Wyo.
It now appears Fed officials were, after their July meeting, leaning toward a rate move in September. But since then, potentially troubling trends have emerged, all exacerbated by China's surprise decision to liberalize its exchange rate. Equity markets have plunged amid wild swings, the dollar has strengthened and commodity prices have fallen.
The key question is how China's move and the other trends will impact the U.S., Fischer said.
"At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual," Fischer said.
Some economists said the Fed won't have enough data to clear up questions about China's impact until after the U.S. central bank's policy meeting in mid-September.
Economists at BNP Paribas said "it seems obvious that the data released in the next two weeks will give almost no information to reduce that uncertainty since they will almost entirely relate to the period before the market correction."
The Fed wants to see further improvement in labor markets and be reasonably confident inflation is moving back toward its 2% annual rate target before hiking rates.
In his speech, Fischer said that there is "good reason" to believe that inflation will move higher.
The impact on prices from the stronger dollar is already "starting to fade," Fischer said. The same is true for the fall in oil prices, through the most recent declines this summer have yet to fully show though, he added.
BNP Paribas economists said there was no way Fed officials could be gaining confidence about inflation given the global developments.
"To think policy makers will be more confident [about inflation] in September than there were in July is ridiculous," economists for the bank said in a research note.
Fischer's comments came at the annual economic symposium hosted by the Federal Reserve Bank of Kansas City this weekend in Jackson Hole, Wyo.
- Greg Robb ; 415-439-6400; [e-mail]
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(END) Dow Jones Newswires
08-29-15 1255ET