Fed's Dudley Mindful of Market Trouble, Won't Say What's Next for Fed -- Update
13 February 2016 - 4:23AM
Dow Jones News
By Michael S. Derby
NEW YORK--Federal Reserve Bank of New York President William
Dudley said Friday that he is very much mindful of the risks
created by unsettled financial markets, but he declined to say
whether these adverse events had changed the outlook significantly
for the U.S. economy.
"The U.S. economy is in quite good shape" and it has "quite a
bit of momentum" to carry it forward, Mr. Dudley told reporters.
But he added "we are definitely aware" of what is happening right
now in financial markets and overseas economies, and that will be
taken into account when the Fed decides what it will be doing with
its interest-rate policy decisions.
Mr. Dudley declined to say whether the huge volatility and big
losses in asset markets had yet changed how central bankers are
thinking about the future rate rises most expect are likely to
happen this year.
"We are data dependent, so we are not going to be definitive and
say we are absolutely not going to do X or do Y, because the data
could change. And if the data were to change in a substantial way
that could definitely affect our decision," the official told media
at a gathering held at his bank on household debt issues.
Mr. Dudley's upbeat view on the economy's underlying strength
came in the wake of two days of congressional testimony on the
economy and policy outlook by Fed Chairwoman Janet Yellen. The
central-bank leader affirmed that she continues to expect the
economy to grow and that the Fed will be able to raise rates
gradually.
But her comments came amid another round of market volatility
and sharp losses in asset markets that again raised the specter of
a recession befalling the U.S. Markets continue to doubt the Fed
will be able to deliver the number of rate raises officials have
penciled in. The rate-setting Federal Open Market Committee next
meets in March, and few see a rise in rates happening then.
Mr. Dudley said he doesn't necessarily see what is happening in
markets as being tied to the U.S. Events are "not really reflecting
developments so much in the U.S. as developments abroad. There are
questions about China's economic development prospects. There are
questions about the degree of strain put on emerging market
economies due to the weakness in commodities and energy prices," he
said.
Mr. Dudley did note that there has been a "significant
tightening" in financial conditions given the volatility, but even
there, he said there were upsides for the U.S. such as a weaker
dollar and lower long-term borrowing costs.
Mr. Dudley also said the roiling debate over whether the Fed
might need to resort to a new round of stimulus by way of a
negative rate policy is way overdone.
"I find that an extremely premature conversation to be having.
The U.S. economy is in quite good shape," Mr. Dudley said. "There
are a lot of things we would do" on the stimulus front before
considering pushing short-term borrowing costs into subzero
territory.
Mr. Dudley did note in his prepared remarks the U.S. central
bank might be limited in what it could to deal with an unexpected
economic downturn.
"Monetary policy is appropriately still quite accommodative
despite the advancing age of the expansion," Mr. Dudley said.
"While this limits to an extent the degree to which monetary policy
can aggressively respond to any adverse events, the good news is
that the economy is more resilient to any shocks."
"Key sectors of the U.S. economy, such as the household sector,
seem to be in good shape," Mr. Dudley said. "The financial system
is also clearly much stronger, with the banking system much better
capitalized and with much larger liquidity buffers than in the
years preceding the financial crisis."
The official repeated his view that expansions don't die simply
of old age, but instead are often ended by central-bank response to
rising inflation or unexpected shocks. "Since the possibility is
low that a significant inflation risk would emerge over the near
term, this means that the main danger facing the current expansion
is the risk of large, adverse shocks," Mr. Dudley said.
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
February 12, 2016 12:08 ET (17:08 GMT)
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