Tags: dudley | job | gains | inflation | fed | rates

Dudley: Job Gains Should Lift Inflation, Fed Should Tighten

Dudley: Job Gains Should Lift Inflation, Fed Should Tighten
(Dollar Photo Club)

Friday, 06 October 2017 12:58 PM

The Federal Reserve should continue gradually raising interest rates amid ongoing improvement in the U.S. job market that ought to lift wage growth and bring inflation back up to the central bank’s 2 percent target, New York Fed President William Dudley said.

“Even though inflation is currently somewhat below our longer-run objective, I judge that it is still appropriate to continue to remove monetary policy accommodation gradually,” Dudley said Friday in remarks prepared for a speech in New York, echoing comments he made in a speech last month.

Dudley’s remarks indicate the Fed’s leadership is largely sticking to its assessment that inflation, despite an unexpected decline this year, will bounce back, putting the U.S. central bank on track for another interest-rate increase in December. Fed Chair Janet Yellen, in a Sept. 26 speech in Cleveland, said it would be “imprudent” to hold rates steady until inflation rebounds all the way to 2 percent.

Fed officials have been wrestling with question of why a tightening labor market hasn’t spurred more wage and consumer price inflation. The unemployment rate fell in September to 4.2 percent, the lowest level in 16 years, according to data released Friday by the Labor Department in Washington.

Despite the improvements in the job market, the Fed’s preferred measure of consumer price inflation, which strips out food and energy components, declined to 1.3 percent in the 12 months through August, from 1.9 percent in January.

Weak Inflation

Dudley once again conceded it’s possible that technological changes that facilitate increased competition are keeping the inflation rate low and could restrain it from returning to 2 percent, but he said the jury is still out.

"While some of this year’s shortfall can be explained by one-off factors -- such as the sharp fall in prices for cellular phone service -- its persistence suggests that more fundamental structural changes may also be playing a role," he said. "Over the coming months, I hope that we will be better able to differentiate between these competing explanations."

Earlier on Friday, Dallas Fed President Robert Kaplan and Atlanta Fed chief Raphael Bostic both suggested they were open to raising rates in December, but were still undecided.

“I think we ought to be patient,” Kaplan, who votes on monetary policy this year, said in an interview with CNBC television. “I’m open-minded about December, but I’m not there yet.”

Bostic, who votes on monetary policy in 2018, said in an interview that he’s “definitely in a wait-and-see mode.’’

“If we continue to see strength and that robust energy in the economy, I will be comfortable with a conversation about increasing rates. But we have to wait and see about those things,” he said.

Philadelphia Fed President Patrick Harker, who is also a 2017 voter, said Thursday he had “penciled in” a rate hike for December. Esther George, head of the Kansas City Fed and possibly the most hawkish Fed policy maker, Thursday urged her colleagues to continue tightening policy to avoid the threat of financial instability from asset-price bubbles.

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The Federal Reserve should continue gradually raising interest rates amid ongoing improvement in the U.S. job market that ought to lift wage growth and bring inflation back up to the central bank's 2 percent target, New York Fed President William Dudley said.
dudley, job, gains, inflation, fed, rates
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2017-58-06
Friday, 06 October 2017 12:58 PM
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