{"id":504729,"date":"2010-04-01T17:00:12","date_gmt":"2010-04-01T21:00:12","guid":{"rendered":"http:\/\/blogs.wsj.com\/economics\/2010\/04\/01\/ny-feds-dudley-recovery-calls-for-extended-period-of-low-rates\/"},"modified":"2010-04-01T17:00:12","modified_gmt":"2010-04-01T21:00:12","slug":"ny-fed%e2%80%99s-dudley-recovery-calls-for-extended-period-of-low-rates","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/504729","title":{"rendered":"NY Fed\u2019s Dudley: Recovery Calls for Extended Period of Low Rates"},"content":{"rendered":"

A top Federal Reserve<\/strong> official reiterated Thursday the central bank is facing no urgency in tightening monetary policy.<\/p>\n

The current economic recovery “is likely to be quite muted compared with past recoveries,” said Federal Reserve Bank of New York<\/strong> President William Dudley<\/strong>. “The substantial amount of slack in productive capacity that exists today will likely only be absorbed gradually,” the official said, which indicates “trend inflation, at least over the near term, should remain very low.”<\/p>\n

That led the official to reiterate what was said at the March Federal Open Market Committee<\/strong>, where the central bank pledged to keep rates low for an “extended period.” Most private sector economists believe the Fed will not raise its overnight target rate, which now rests at essentially 0%, until sometime in the summer, perhaps even later.<\/p>\n

Dudley’s comments came from the text of a speech<\/a> to be given in Lexington, Va., as part of the Washington and Lee University<\/strong> H. Parker Willis Lecture in Political Economics.<\/p>\n

The official is also the vice chairman of the interest-rate-setting FOMC, and he spoke one day before the release of the hotly anticipated March jobs report. Many economists believe the combination of an underlying improvement in hiring coupled with weather-related factors and gains due to government census jobs could actually produce a notable jump in payrolls for last month.<\/p>\n

That said, the jobs report will be tricky, because it will be hard to know how much of an improvement is merely temporary. Currently, the Federal Reserve expects only a modest rate of improvement in hiring, as growth accelerates slowly. This environment is not expected to heat up already calm price pressures, which leads policy makers to believe they can keep rates low for many months to come.<\/p>\n

Still, the recovery is leading officials to form plans on how they can exit from all the support they’ve given the economy over the course of the financial crisis, and the central bank just completed its effort to buy $1.25 trillion in mortgage securities.<\/p>\n

Dudley noted in his speech “we need viable exit strategies from this recent period of monetary and fiscal policy stimulus” and he said the Fed has been “working hard to ensure that we have the tools in place so that we can be effective in tightening monetary policy when the time is right, even with an enlarged balance sheet.”<\/p>\n

Dudley’s comments suggest the official is not expecting to see much from hiring for some time. “The unemployment rate remains unacceptably high,” although because “output has begun to expand again…we appear to be on the verge of seeing sustained growth in employment,” he said.<\/p>\n

But because the gap between the economy’s actual and potential growth rates remains so large, he’s not worried that the force that normally motivates the Fed to increase rates–higher inflation–will show up anytime soon.<\/p>\n

“Relatively sluggish growth implies that the output gap will be closed very gradually,” Dudley said, which “suggests that inflation pressures will stay subdued.” He added, “longer-term inflation expectations remain well anchored” and are “broadly consistent with my views on the appropriate inflation goal.”<\/p>\n

As Dudley surveyed the U.S. economic landscape, he said only business investment “is in a position to be a true locomotive of growth,” and even then, it won’t be a strong driver of activity.<\/p>\n

The official said that fiscal stimulus is running out, and “is slowly shifting from an expansive policy back toward restraint.” Dudley added “recent data on the housing sector indicates that the recovery has stalled.” Meanwhile, “the U.S. trade balance is likely to change little over the next year or two, and, thus, will be relatively neutral in terms of its impact on growth.”<\/p>\n

The central banker devoted part of his speech to evaluating the persistent imbalance of capital flows in the U.S., which have for decades seen the nation run a deficit with the rest of the world.<\/p>\n

Dudley was not alarmed by where the U.S. is now, saying “despite the large flow of foreign saving into the United States, our international financial position does not appear precarious at the present time.” That’s because as much capital as the U.S. absorbs it also has large investments overseas, which generate more income than foreign investments in the U.S. do.<\/p>\n

What’s more, “low interest rates minimize the cost to the United States of our substantial negative net debt position,” Dudley said. He also explained that “a decline in the dollar…would boost our net investment income balance.”<\/p>\n

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<\/p>\n","protected":false},"excerpt":{"rendered":"

A top Federal Reserve official reiterated Thursday the central bank is facing no urgency in tightening monetary policy. The current economic recovery “is likely to be quite muted compared with past recoveries,” said Federal Reserve Bank of New York President William Dudley. “The substantial amount of slack in productive capacity that exists today will likely […]<\/p>\n","protected":false},"author":850,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-504729","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/504729","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/850"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=504729"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/504729\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=504729"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=504729"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=504729"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}