Tags: Fed | Dudley | Growth | jobless

Fed's Dudley: US Economic Growth Too Slow to Dent Jobless Rate

Friday, 18 Nov 2011 10:49 AM

Federal Reserve Bank of New York President William C. Dudley said the central bank will do all it can to spur growth after undertaking “extraordinary actions” to combat the credit crisis.

"Growth has picked up modestly in the second half of 2011, but not enough to bring unemployment down," Dudley said at the University of Albany.

While there are some areas of the U.S. economy that are performing well, "strong headwinds" are preventing a more vigorous recovery, he said.
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“The Fed is doing — and will continue to do — everything within its power to promote jobs and price stability,” Dudley, 58, said in a speech in Albany, New York.

“We cannot be satisfied with the current state of the economy or the outlook for the next few years,” particularly with an “unacceptably high” unemployment rate of 9 percent, he said.

Dudley, a permanent voting member of the Fed's policysetting panel, is known as a full-employment emphasizing policy "dove" and has advocated aggressive action to accelerate modest growth.

Dudley's comments about weak growth are similar to remarks he has made in recent days. However, on Friday he added that he believes inflation is set to moderate.

Fed officials are divided over whether the central bank should wait to see if the economy deteriorates before taking additional steps to lower borrowing costs and boost job creation. Fed Chairman Ben Bernanke said Nov. 2 that additional stimulus “remains on the table.”

The central bank still has “ammunition” for boosting the economy, such as providing clearer guidance on how long interest rates will stay low or resuming asset purchases, Dudley said yesterday at West Point, New York.

It would be “desirable” for the Fed to offer more guidance on the economic conditions needed before it raises interest rates from close to zero, he said.

If the Fed opted to buy more bonds, “it might make sense” for much of those to consist of mortgage-backed securities to boost the housing market, Dudley said yesterday.

Dudley said in response to audience questions that the risk of the economy slipping into another recession has fallen “significantly” in recent months.

“There’s obviously still a risk but I think the risk has certainly diminished relative to what it was even a few months ago,” Dudley said. Additional stimulus “is certainly something that we haven’t ruled in or out depending on how the economy evolves in the future.”

Dudley said there “should be no anxiety” about whether the Fed’s enlarged balance sheet will cause the economy to overheat. The ability to pay interest on excess reserves “basically allows us to keep credit expansion under control,” he said. Market participants “accept this view,” as long-term inflation expectations are “very well-behaved,” he said.

Dudley said the U.S. economy continues to “face significant downside risks, mostly related to the stress in the eurozone.” He reiterated his view that European leaders are committed to resolving the sovereign debt crisis and said “they’re moving in the right direction toward greater fiscal integration.”

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Federal Reserve Bank of New York President William C. Dudley said the central bank will do all it can to spur growth after undertaking extraordinary actions to combat the credit crisis. Growth has picked up modestly in the second half of 2011, but not enough to bring...
Fed,Dudley,Growth,jobless
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Friday, 18 Nov 2011 10:49 AM
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