U.S. economy nearing full employment, bounced back in second quarter: Fed's Fischer

Annual growth rate 2.5 per cent

WASHINGTON (Reuters) — The U.S. economy probably bounced back to an annual growth rate of around 2.5 per cent in the second quarter, and the labour market is approaching full employment, Federal Reserve vice-chairman Stanley Fischer said on Tuesday.

He said "tentative" signs of wage growth and continued job creation also gave him confidence that U.S. labour markets will continue improving, and gradually push inflation towards the Fed's two per cent target.

Speaking at a meeting of African central bankers at England's Oxford University, Fischer did not directly address the timing of an initial Fed rate hike that is expected as early as September.

But he noted that the central bank needed to stay ahead of the curve, since monetary policy only affects the economy with a time lag.

"We should not wait until we have reached our objectives to begin adjusting policy," Fischer said in prepared remarks.

The gathering was meant to address problems particular to central bankers in Africa, and Fisher said the Fed was carefully weighing the possibility its upcoming shift in monetary policy could have significant effects on developing nations.

Rising global interest rates, for example, could make it more difficult for countries to finance development projects and infrastructure.

"In order to minimize the likelihood of surprises and thus avoid creating unnecessary market and policy volatility, we are striving to communicate our policy strategy clearly and transparently," Fischer said.

Since late last year the Fed has wrestled with whether a weaker global economy might throw the United States off track and force a further delay in any rate hike.

The escalating crisis in Greece could add to that uncertainty if it drags the euro zone back into recession.

Fischer did not mention the Greek crisis specifically. But he said the global situation remained a “significant headwind” for the United States.

It has hurt the country's exports in particular, and Fischer said the impact is likely to continue.

Still, Fischer's view of the economy remained one of steady improvement at a time when the Fed has said it would consider an interest rate hike at each upcoming meeting, and be responsive to incoming data.

Investors have steadily reduced the odds of a September rate hike, but upcoming reports — including unemployment statistics to be released Thursday — could prove central.

"Our policy will be data-dependent, and the (Federal Open Market Committee) at upcoming meetings will weigh possible adjustments" to the interest rate, Fischer said.

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