Tags: federal reserve | dudley | growth | rates

Fed's Dudley: GDP Rebound Should Support Higher Rates in '15

Monday, 20 Apr 2015 09:12 AM


Federal Reserve Bank of New York President William C. Dudley said he is relatively optimistic that a rebound in U.S. growth will support a decision to raise interest rates later this year while highlighting the uncertainty surrounding the timing of an increase.

“Despite the weak performance of the first quarter, I believe that the growth prospects for the U.S. economy over the remainder of 2015 will improve,” Dudley said in remarks prepared for a speech at the Bloomberg Americas Monetary Summit in New York. “When, hopefully, the data support a decision to lift off later this year, it does not mean that U.S. monetary policy will be tight.”

Fed policy makers last month were split over whether they would raise rates in June or later, a debate that occurred before disappointing payroll figures for March, minutes of their most recent policy meeting showed.

“It will be important to determine whether the softness in the March labor market report was temporary, or if it foreshadows a more substantial slowing in the labor market than I currently anticipate,” Dudley said.

Most policy makers expect to raise the benchmark interest rate some time this year, according to forecasts released last month. A recent run of weak data on housing, retail sales and industrial production has prompted some officials to say they are wary of raising rates too soon.

‘Downside Risks’

“While I am relatively optimistic about the growth outlook for 2015, I also must acknowledge that there are some significant downside risks,” Dudley said.

He cited staff estimates that the rise in the value of the dollar could reduce growth by 0.6 percentage point this year, and said a slowdown in business investment following a drop in oil prices “will undoubtedly exert a meaningful drag on economic activity.”

While Fed tightening “most likely will be accompanied by some degree of market stress and turbulence,” Dudley said, emerging market countries are better equipped to handle the fallout than in past tightening cycles.

“We are and will remain attentive to the risk that the onset of Fed policy normalization could bring a new round of market pressures on” emerging-market economies, Dudley said. “Yet I think there are good reasons to think that this adjustment will prove manageable and not be very disruptive.”

He cited the absence of pegged exchange-rate regimes, “moderate” external debt levels, larger foreign-currency cushions and better fiscal discipline in emerging markets.

“Vulnerabilities remain in several important” emerging market economies, he said, without naming them. Still, “fundamental improvements” leave many such economies “better positioned than in the past to weather those times in the cycle when the external environment turns more challenging.”


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Federal Reserve Bank of New York President William C. Dudley said he is relatively optimistic that a rebound in U.S. growth will support a decision to raise interest rates later this year while highlighting the uncertainty surrounding the timing of an increase. "Despite the...
federal reserve, dudley, growth, rates
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2015-12-20
Monday, 20 Apr 2015 09:12 AM
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