Tags: federal reserve | dudley | rates | economy

Fed's Dudley Sees Reasons for Caution on Raising Rates Too Soon

Friday, 27 Feb 2015 05:35 AM

William C. Dudley, president of the Federal Reserve Bank of New York, said he sees reason for caution on how soon or how quickly to raise interest rates.

“Inflation is projected to stay for some time below the Fed’s objective of 2 percent,” he said in prepared remarks on Friday in New York. He also cited “lingering headwinds” from the financial crisis.

Dudley also repeated his view that raising rates too soon poses greater risks to the economy than lifting them too late. Fed officials are debating when to raise the benchmark interest rate for the first time since 2006, with most officials predicting an increase some time this year.

While Dudley said he doesn’t accept the “secular stagnation” thesis of prolonged period of low growth and interest rates, the appropriate longer-run level of the federal funds rate will probably be lower than in the past because of slower growth in the labor force and worker productivity.

“My point estimate is that the longer-run value of the federal funds rate is 3.5 percent, well below its long-run historical level of 4.25 percent,” he said. “At the same time, I also have little confidence about the accuracy of this specific estimate,” he said.

The New York Fed chief said a cautious approach to tightening only applies as long as inflation expectations are stable. He added that globalization and a migration of financial activities away from the banking system may have made the federal funds rate less effective in influencing the economy.

“If the transmission of monetary policy to the real economy is more variable and uncertain, as I believe it is, then monetary policy cannot be put on autopilot guided only by a fixed policy rule,” he said.


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William C. Dudley, president of the Federal Reserve Bank of New York, said he sees reason for caution on how soon or how quickly to raise interest rates.
federal reserve, dudley, rates, economy
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2015-35-27
Friday, 27 Feb 2015 05:35 AM
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