Federal Reserve Vice Chairman Stanley Fischer said government policies could partly counteract the impact of lower productivity and an aging population that are holding back the U.S. economy and weighing on interest rates.

“Some combination of more encouragement for private investment, improved public infrastructure, better education, and more effective regulation is likely to promote faster growth of productivity and living standards,” Fischer said in the text of a speech Monday to the Economic Club of New York. Such policies could also “reduce the probability that the economy and, particularly, the central bank will in the future have to contend with the effective lower bound” for interest rates.

Fischer said an increase in government spending by 1 percent of gross domestic product would lead to a rise in the equilibrium level of interest rates -- the rate that neither stimulates nor holds back the economy -- by 0.5 percentage point, according to Fed research. An equivalent tax cut would lift the equilibrium rate by 0.4 percentage point.

David Fuller's view

This is an obvious point and there was a paucity of back slapping among the old boys at the Economic Club of New York for this meeting.  No wonder as Stanley Fischer cited slower domestic growth, an aging population, lower investment and slower foreign growth as reasons for the current problem. 

To this we could add the uninspiring US Presidential Election, featuring the serial groper versus the serial taxer.  The US Dollar Index is the unmentioned bear in the room, and unseasonaly, it is waking up.  An extended break above the 100 level would unnerve a number of stock markets.