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Recent FedSpeak Highlights

  • William C. Dudley In my view, the case for retaining the current floor system is very compelling.

    [ April 18, 2018 ]

    For [the implementation of Fed’s policy framework], I see two options: return to the “corridor”-type system that was in place prior to the financial crisis, or remain with the framework that has been in place since the crisis—namely, a “floor” system.

    In my view, the case for retaining the current floor system is very compelling for a number of reasons.  First, it is operationally much less complex than a corridor system.  In the current regime, the setting of IOER is largely sufficient to maintain the federal funds rate within the FOMC’s target range, as we have seen over the past few years.10  In contrast, a corridor system requires forecasting the many exogenous factors that affect the amount of bank reserves outstanding, and then engaging in open market operations on a near daily basis to keep reserves at a level consistent with the FOMC’s target range. This task would likely be more difficult now because of greater fluctuation in these exogenous factors relative to when the corridor regime was last in place.

    Second, a corridor system constrains the Federal Reserve’s ability to provide the types of lender-of-last-resort backstops that can help support financial stability… My overall point is that broad-based, open-ended lender-of-last-resort facilities are more difficult to accommodate in a corridor system because of the need to drain any reserve additions to keep the federal funds rate close to the FOMC’s target.

  • William C. Dudley I don't know what neutral is precisely, but I think 3% is a reasonable starting point in terms of thinking about what neutral might be over the long run.

    [ April 16, 2018 ]

    I don't know what neutral is precisely, but I think 3% is a reasonable starting point in terms of thinking about what neutral might be over the long run. But it depends on so many other factors. What's happening to the stock market, what's happening to the bond market, what's happening to the dollar. So this idea that there's this magic neutral rate that's sort of constant for all time I think is not a good way of looking at it.

  • William C. Dudley If you were to go to four rate hikes I think it would still be gradual.

    [ March 1, 2018 ]

    “If you were to go to four ... rate hikes I think it would still be gradual,” Dudley said at a Sao Paulo conference. He noted that would be half as aggressive as the eight-per-year hikes the Fed executed last decade, which he called the “alternative to gradual.”

  • William C. Dudley The terminal balance sheet may actually turn out to be even higher than $2.9 trillion.

    [ February 23, 2018 ]

    During the discussion at the Chicago Booth monetary policy forum, Dudley said he is a “strong advocate” for the floor system for setting interest rates, which requires large amount of excess reserves in the system.

    “So the terminal balance sheet may actually turn out to be even higher” than the $2.9 trillion level estimated by Wall Street economists in a paper presented at the forum, Dudley said.

  • William C. Dudley Concluding that LSAPs are less powerful than suggested by some of the estimates from the event study literature does not imply that there is no role for LSAPs at the zero lower bound... [D]iscarding such a tool or ruling out its use seems counterproductive for two reasons. First, to the extent that such a tool can provide accommodation, ruling out its use would raise the risks of insufficient monetary policy accommodation when interest rates are pinned at the zero lower bound. Second, expectations matter. If households and businesses believe that the Fed has run out of tools to provide monetary policy accommodation or is unwilling to use certain tools for that purpose, the risk of inflation expectations becoming unanchored to the downside would increase, which would make it even more difficult for the central bank to achieve its goals. For these reasons, LSAPs should be viewed as a viable tool in our arsenal to be used when the zero lower bound is a relevant policy concern

    [ February 23, 2018 ]
  • William C. Dudley There is a bit of a, I would say, speculative mania around cryptocurrencies in terms of their valuations.

    [ February 22, 2018 ]

    “There is a bit of a, I would say, speculative mania around cryptocurrencies in terms of their valuations, which I view as pretty dangerous because I don’t really see what the actual true underlying value of some of these cryptocurrencies actually is in practice,” Mr. Dudley said.

    When it comes to the privately issued digital money, “it’s essentially what people think it’s worth, which seems to me somewhat dangerous,” Mr. Dudley said. “I’m a little bit skeptical we actually have this tremendous need for a cryptocurrency in the United States,” he added.

  • William C. Dudley So far, I’d say this is small potatoes... The little decline that we’ve had in the equity market today has virtually no implications for the economic outlook.

    [ February 8, 2018 ]

    “So far, I’d say this is small potatoes,” Dudley said of recent market moves. “The little decline that we’ve had in the equity market today has virtually no implications for the economic outlook.”

  • William C. Dudley Historically the ability of the Fed to generate a soft landing when the unemployment rate has gone too low . . . the track record is poor.

    [ January 18, 2018 ]

    Historically the ability of the Fed to generate a soft landing when the unemployment rate has gone too low . . . the track record is poor. Pretty much in all the cases where the unemployment rate has been pushed up a little, it has actually ended up rising a lot. There are no examples historically of the unemployment rate moving up a half a per cent, or 1 per cent, or even 1.5 per cent. Once you have pushed up beyond a couple of tenths of a per cent, the next stop historically is there has been a full-blown recession. Now that does not mean that historical regularity necessarily has to be repeated, but I do think it is hard for the Fed to bring the economy back to a sustainable growth pace, sustainable labor market, if the economy really is too strong and the unemployment rate gets too low.  That is a risk to the longer-term outlook but it needs to be recognised. 

  • William C. Dudley The fact is that we have been tightening monetary policy over the last couple of years, yet financial conditions are actually easier today than when we began to start to tighten monetary policy.

    [ January 18, 2018 ]

    We will have to see how the economy evolves. There are arguments on both sides of the ledger. Inflation is still below our 2 per cent objective, so that argues for patience, on the other side the economy is growing at an above-trend pace, we are getting more fiscal stimulus so that should actually reinforce that trajectory, the labour market continues to tighten, financial conditions are very accommodative — that is something I put a fair amount of weight on. The fact is that we have been tightening monetary policy over the last couple of years, yet financial conditions are actually easier today than when we began to start to tighten monetary policy.

    It all suggests that the forecast that the FOMC wrote down in December, in the December summary of economic projections — where the median was three rate hikes in 2018 seems a very reasonable type of forecast . . . It could be more. We could do a little bit more, or could do a little bit less. Remember all these are forecasts, they are not pre-commitments. Sometimes people take the SEPs I think a bit too literally. They are just what we think is likely at that particularly point of time. If the economy changes of course we will change our forecasts.

    In response to a question about whether the Fed would raise rates three times in 2018.

  • William C. Dudley I don’t think there is any signal at all to take today [from the flat yield curve] in terms of the probability of a near-term recession.

    [ January 18, 2018 ]

    The yield curve is flatter than normal but there are good reasons why it is flatter than normal. The most obvious one is that we have QE still ongoing in Japan and Europe and the Fed still has a very elevated balance sheet relative to where we are actually headed in the medium to longer term. So bond term premia are unusually depressed. So think about the path you expect of short term rates in the future and ask yourself how much additional compensation for the risk of holding a bond you want to take. Right now by the measures we have bond term premia are about zero. That means the yield curve, everything else equal, is going to be flatter today than it would typically in prior environments when the term premium was much much larger. Historically the term premium, the spread between say three month treasury bills and 10-year treasury notes, has been about 100 basis points in terms of that term premium. Today the term premium is about zero. That accounts for pretty much all of the fact that the yield curve is flatter than normal can be explained just by the bond term premium.

    I would be much more concerned about the yield curve if I thought that the yield curve was flat because people thought short-term rates were high and monetary policy was tight. The reason why . . . an inverted yield curve has historically been a pretty good predictor of recession is typically the yield curve becomes inverted and people think short-term rates are high relative to what they are going to be in the future because monetary policy is tight. That turns out to be correct, and the tightness of monetary policy generates an economic downturn and so the yield curve essentially forecasts that outcome. In the current environment the yield curve is not inverted, it is flatter than normal mainly because term premia are unusually depressed. Market participants think short-term rates are low relative to what they are going to be in the future. I don’t think there is any signal at all to take today in terms of the probability of a near-term recession.

  • William C. Dudley Another thing to look at is should we have a range for the inflation rate rather than just a 2 per cent target? I think the 2 per cent objective is a little bit overly precise.

    [ January 18, 2018 ]

    A:  I would not start with the notion of what should we be looking at in terms of our inflation target. I would back up one step and say we should be thinking about the issue of the zero lower bound and what is the risk that in the next recession we could be pushed back to the zero lower bound, and then how do we feel about that and how do we feel about whether we have sufficient instruments to sort of manage that process... You really want to evaluate what are the tools we have to generate an economic recovery after the next recession if we are actually pinned at the zero lower bound. I think we are in some ways in better shape today than we were 10 years ago, because we actually have policies that we have pursued that I think have proven to be effective — namely forward guidance and quantitative easing. In some ways the risk of inflation expectations becoming un-anchored to the downside, which is one of the big risks of being pinned at the zero lower bound, that seems diminished relative to where we were 10 years ago in my opinion. But don’t get me wrong. This is definitely worth evaluating. This is a key issue for monetary policy. At the same time I don’t want to overstate the degree of concern I have. Because remember we have only been pinned at the zero lower bound once, in the post world war two period. That is a period of 70 years and we have only had one experience. I don’t want to totally upend monetary policy because of concerns we might go back to the zero lower bound, because I would worry a little bit that I was fighting the last war.

    Q: The reason people say you would not be fighting the last war is this debate we have just been discussing, which is that r* is going to stay low . . . 

    A: But we don’t know that yet. We don’t know what the terminal federal funds point is going to be in this particular business cycle . . . There is a presumption it will be low and there is a presumption we will not have that much room to lower it, but we don’t really know that yet. I don’t want to get ahead of ourselves. I think it is completely reasonable to evaluate all this and I think we have to really study it very carefully but I don’t think we want to jump to conclusions just because we got pinned at the zero lower bound in the last crisis and I don’t think we want to conclude that r* is necessarily depressed permanently and that has some long term consequences for monetary policy. In terms of my own thought process on this I guess thinking about a price level targeting regime is something worthy of evaluating. Ben Bernanke has proposed an asymmetric price level targeting regime where you basically make up shortfalls when you are running below your inflation target but don’t make up shortfalls when you are running above. 

    Q: Kind of complicated . . . 

    A: . . . on the downside it is complicated but I understand why he is proposing it that way. Price level targeting does have some attractive features ... that will help keep inflation expectations better anchored and that makes it more easy to actually recover from an economic downturn. So that is one thing to look at.

    Another thing to look at is should we have a range for the inflation rate rather than just a 2 per cent target? I think the 2 per cent objective is a little bit overly precise. I think almost never will actually be right spot on the 2 per cent objective. It would be worth at least evaluating whether a range might be a more appropriate way to communicate how well we want to do, or how well we think it is feasible to do in terms of our inflation target. 

    Q: A range from 1 to 3 [per cent]? 

    A: Let’s say from 1.5 to 2.5 [per cent]. The idea would be when you are at 1.5 to 2.5 [per cent] you are not very concerned. It is pretty close to your definition of price stability. But if you get outside of that range on either side you become more concerned. That would be something worthy of evaluating.

    Moving from a 2 per cent inflation target to a 4 per cent inflation target: I personally think that is a bridge too far for two reasons. Number one the mandate for us is not set by the Fed it is set by Congress, and Congress has said price stability. I think it is very hard to pretend that 4 per cent inflation is consistent with price stability. And two if you actually had a 4 per cent inflation target it would start to distort economic decision-making.  Think about it: at 2 per cent inflation the price level doubles every 35 years. At 4 per cent inflation it doubles twice as fast. That then really has consequences for retirees and businesses and investors. So I think I would be at this point at least pretty sceptical of the wisdom of moving to a higher inflation target.

    ... 

    Q: The Fed is supposed to be targeting 2 per cent currently, at any given time; is there any argument that you could target 2 per cent over the course of a cycle? That would get you towards this idea of a price level target without formally moving to a price level target, because you are looking at an average over time? 

    A: You could potentially have something that was sort of a soft version of price level targeting. The problem with price level targeting if you actually move to that formally is it raises a lot of questions. If you overshoot inflation how quickly do you have to bring inflation back to your 2 per cent average. If you had a more general thing that our goal is to achieve 2 per cent inflation over the medium to longer run that could be maybe a softer version of price level targeting, without having to describe all the nuances. One of the challenges of price level targeting is how do you communicate it? And the second challenge of price level targeting is if you do the symmetric version it is attractive when you undershoot inflation that you want to overshoot inflation. It is not so attractive that when you overshoot inflation you want to undershoot inflation. You want to undershoot inflation then the zero lower bound problem reasserts itself. That is really the problem of symmetric price level targeting. You are comfortable overshooting after you undershoot, you are not very comfortable if you have overshot to undershoot.

  • William C. Dudley Over the longer term, however, I am considerably more cautious about the economic outlook.  Keeping the economy on a sustainable path may become more challenging.  While the recently passed Tax Cuts and Jobs Act of 2017 likely will provide additional support to growth over the near term, it will come at a cost...  While this does not seem to be a great concern to market participants today, the current fiscal path is unsustainable.

    [ January 11, 2018 ]

    Broadly speaking, the prospects for continued economic expansion in 2018 look reasonably bright.  The economy is likely to continue to grow at an above-trend pace, which should lead to a tighter labor market and faster wage growth.  Under such conditions, I would expect the inflation rate to drift higher toward the FOMC’s 2 percent long-run objective.

    Over the longer term, however, I am considerably more cautious about the economic outlook.  Keeping the economy on a sustainable path may become more challenging.  While the recently passed Tax Cuts and Jobs Act of 2017 likely will provide additional support to growth over the near term, it will come at a cost.  After all, there is no such thing as a free lunch.  The legislation will increase the nation’s longer-term fiscal burden, which is already facing other pressures, such as higher debt service costs and entitlement spending as the baby-boom generation retires.  While this does not seem to be a great concern to market participants today, the current fiscal path is unsustainable.  In the long run, ignoring the budget math risks driving up longer-term interest rates, crowding out private sector investment and diminishing the country’s creditworthiness.  These dynamics could counteract any favorable direct effects the tax package might have on capital spending and potential output.

  • William C. Dudley From WSJ: “Most central bankers would say ‘sign me up’ ” for the current situation facing the Fed, Mr. Dudley said.

    [ November 27, 2017 ]

    Mr. Dudley repeated his view that low inflation with low unemployment is “not actually a bad thing,” because it would enable policy makers to “probe” how much lower the jobless rate can go before inflation heats up.

    “Most central bankers would say ‘sign me up’ ” for the current situation facing the Fed, Mr. Dudley said.

  • William C. Dudley I expect inflation will rise and stabilize around the FOMC’s 2 percent objective over the medium term. In response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually.

    [ September 25, 2017 ]

    With a firmer import price trend and the fading of effects from a number of temporary, idiosyncratic factors, I expect inflation will rise and stabilize around the FOMC’s 2 percent objective over the medium term. In response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually.

  • William C. Dudley [Our early estimates would suggest] a normalized balance sheet size of, perhaps, $2.4 trillion to $3.5 trillion in the early 2020s.

    [ September 7, 2017 ]

    This leads us to the next question:  Assuming that a floor system is retained, what amount of reserves will be needed in the banking system so that day-to-day open market operations are not necessary to keep the federal funds rate within its target range?

    As a rough starting point, we have suggested that the necessary amount of excess reserves could be in a range of $400 billion to $1 trillion.   Coupled with uncertainty about the likely growth in other factors, such as currency outstanding, this implies a normalized balance sheet size of, perhaps, $2.4 trillion to $3.5 trillion in the early 2020s.  

  • William C. Dudley If [the economy] evolves in line with my expectations, I would be in favor of doing another rate hike later this year.

    [ August 14, 2017 ]

    If [the economy] evolves in line with my expectations, I would be in favor of doing another rate hike later this year.

  • William C. Dudley I don't think the expectations of market participants [for a September start for the balance sheet reduction process] are unreasonable.

    [ August 14, 2017 ]

    I don't think the expectations of market participants [for a September start for the balance sheet reduction process] are unreasonable.

  • William C. Dudley When financial conditions ease, as has been the case recently, this can provide additional impetus for the decision to continue to remove monetary policy accommodation.

    [ June 25, 2017 ]

    "Monetary policymakers need to take the evolution of financial conditions into consideration," Federal Reserve Bank of New York president and CEO William Dudley, a permanent voter on U.S. interest rates and a close ally of Fed Chair Janet Yellen, said on a closed-to-the-press panel on Sunday.

    "When financial conditions ease, as has been the case recently, this can provide additional impetus for the decision to continue to remove monetary policy accommodation," he said according to prepared remarks published by the New York Fed.

  • William C. Dudley Generally, if you sort of asked me would I sign up for a 4.3 percent unemployment rate and inflation running about 1 1/2 percent, the answer is:  absolutely.

    [ June 19, 2017 ]

    "I am very confident" that economic expansion "has quite a long ways to go," Dudley said, adding he expected wage growth to rise to about 3 percent over the next year or two.

    ...

    "Generally, if you sort of asked me would I sign up for a 4.3 percent unemployment rate and inflation running about 1 1/2 percent, the answer is:  absolutely."

  • William C. Dudley Countries need to compete better, not compete less.

    [ May 11, 2017 ]

    Protectionism can have a siren-like appeal.  Viewed narrowly, it may be potentially rewarding to particular segments of the economy in the short term.  Viewed more broadly, it would almost certainly be destructive to the economy overall in the long term.

    Countries need to compete better, not compete less.  Trade barriers are a very expensive way to preserve jobs in less competitive or declining industries.  They blunt opportunities in export industries and they reduce the affordability of goods and services to households.  Indeed, such measures often backfire, resulting in harm to workers and diminished growth.

  • William C. Dudley Presumably at the time that you make the decision on the balance sheet you might want to forgo the decision on short-term rates just to make sure that [it] doesn’t turn out to be a bigger decision than you thought you were making. So, I would emphasize the words ’little pause'.

    [ April 7, 2017 ]

    Presumably at the time that you make the decision on the balance sheet you might want to forgo the decision on short-term rates just to make sure that the balance-sheet decision doesn’t turn out to be a bigger decision than you thought you were making. So, I would emphasize the words ’little pause'.

    As reported by Dow Jones

  • William C. Dudley If and when we decide to begin to normalize the balance sheet we might actually decide at the same time to take a little pause in terms of raising short-term interest rates.

    [ March 31, 2017 ]

    "It wouldn't surprise me if some time later this year or some time in 2018, should the economy perform in line with our expectations, that we will start to gradually let the securities mature rather than reinvesting them," Dudley, a close ally of Fed Chair Janet Yellen, said on Bloomberg TV.

    "If we start to normalize the balance sheet, that's a substitute for short-term rate hikes because it would also work in the direction of tightening financial conditions," he said. "If and when we decide to begin to normalize the balance sheet we might actually decide at the same time to take a little pause in terms of raising short-term interest rates."

  • William C. Dudley I don’t think we are removing the punch bowl, yet.  We’re just adding a bit more fruit juice. 

    [ March 30, 2017 ]

    William McChesney Martin, the ninth chair of the FOMC, once famously opined that the Federal Reserve is “in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.”  I don’t think we are removing the punch bowl, yet.  We’re just adding a bit more fruit juice. 

  • William C. Dudley The case for monetary policy tightening has become a lot more compelling.

    [ February 28, 2017 ]

    We have seen a "very large" rise in household and business confidence and "very buoyant" financial markets since the election, "and we have the expectation that fiscal policy will probably move in a more stimulative direction," Dudley said on CNN.

    "The case for monetary policy tightening has become a lot more compelling.”

  • William C. Dudley To the extent that we do decide at some point in the future to taper or end reinvestments, that will also be a way of removing accommodation, so that will be a bit of a substitute for raising short term interest rates.  That might actually stretch out the process of [rate hikes].

    [ February 15, 2017 ]

    Forecasts from Fed officials suggest three rate hikes are expected this year, at which point they could consider to begin trimming the $4.5-trillion portfolio of bonds the central bank amassed in the wake of the financial crisis.

    Asked about this timing, Dudley said he would want to delay shrinking the portfolio until he is more confident that rate cuts would not be needed.

    "To the extent that we do decide at some point in the future to taper or end reinvestments (of maturing bonds), that will also be a way of removing accommodation, so that will be a bit of a substitute for raising short term interest rates," he said.

    "So ... that might actually stretch out the process of" rate hikes, he added.

  • William C. Dudley As I see it, the problem occurs when an organization’s culture equates “what is right” with what is legally permissible, and when “what is wrong” becomes equivalent to what is legally impermissible.

    [ January 11, 2017 ]

    What’s more, establishment of too many brightline rules may prove counterproductive in encouraging a good culture. For one thing, intricate and detailed rules can be construed as implying that the responsibility for good conduct rests with supervisors and regulators. For another, rules may create opportunities or incentives for legal or regulatory arbitrage—finding creative ways around rules. And this activity may, in itself, have insidious effects on culture.

    As I see it, the problem occurs when an organization’s culture equates “what is right” with what is legally permissible, and when “what is wrong” becomes equivalent to what is legally impermissible. The technical legality of the rule, not the propriety of our conduct, becomes the arbiter of our actions. A proliferation of rules may prompt us to ask first what we can do, not what we should do. Legal arbitrage is intellectually energetic, but ethically lazy.

  • William C. Dudley I favor automatic, rather than discretionary, fiscal actions because they would typically go into effect more quickly and would be better anticipated.

    [ December 5, 2016 ]

    I favor automatic, rather than discretionary, fiscal actions because they would typically go into effect more quickly and would be better anticipated. Expectations matter greatly in affecting economic behavior. For example, if the economy were to weaken, the anticipation that strong fiscal stabilizers would kick in to support incomes should lead workers to be less fearful about losing their jobs, and businesses to be less concerned that demand for their products might fall precipitously. This, in turn, would make workers more confident that they could sustain their spending, and would make businesses more confident that they could keep workers on their payrolls.

    What type of fiscal stabilizers would be most effective? I would turn first to those that Congress has implemented on a discretionary basis during past economic downturns, such as extensions of unemployment compensation and cuts in payroll taxes. For example, when the unemployment rate climbs, extensions of the duration of eligibility for unemployment compensation could be triggered automatically, helping to stabilize household income. Similarly, when the unemployment rate breaches certain thresholds, payroll tax cuts could be triggered, helping to support the disposable income of workers facing reductions in hours. Payroll tax cuts also have the advantage of skewing more toward low- and moderate-income workers, who typically have a higher propensity to consume out of current income.

    Obviously, it is up to the incoming Administration and Congress to decide on the appropriate fiscal measures. But, the point that I want to highlight is that robust automatic fiscal stabilizers would complement monetary policy, and take some pressure off of the Federal Reserve to undertake extraordinary measures in situations where there is little scope for cutting short-term interest rates.

  • William C. Dudley I’ve never really been that concerned about the inflation outlook, as long as the economic growth materialized and that put pressure on the excess labor resources... I felt that as long as we got the economic growth, and that used up the excess slack we had in the labor market, the inflation problem would take care of itself. And I think that’s the trajectory that we’re on.

    [ October 14, 2016 ]

    I’ve never really been that concerned about the inflation outlook, as long as the economic growth materialized and that put pressure on the excess labor resources. So my focus has always been on the growth side. I didn’t feel that inflation was dramatically below our objective, when you look at core inflation. I also felt that—I’ve felt for a long time that inflation expectations were quite well-anchored in the U.S., which is quite different than the case of other regions, such as Japan and to a lesser degree Europe.

    So I felt that as long as we got the economic growth, and that used up the excess slack we had in the labor market, the inflation problem would take care of itself. And I think that’s the trajectory that we’re on.

  • William C. Dudley I expect that we’re going to be raising interest rates relatively soon... I would expect this year.

    [ October 14, 2016 ]

    DUDLEY: If the economy continues to evolve along the path that we expect, I expect that we’re going to be raising interest rates relatively soon.

    WSJ: What does “relatively soon” mean?

    DUDLEY: I would expect this year.

    ...

    DUDLEY:  As the chair has said, I mean, [November] is a live meeting. So I’m going to repeat that. But at the same time, as I just said a little bit earlier, there isn’t this tremendous urgency to act on monetary policy right now. There’s not that—it’s not like if we wait a meeting or don’t wait a meeting that it has huge consequences for the trajectory of the economy. And I’ll leave it at that.

    ...

    DUDLEY:  It’s not for me to say whether markets are too hung up [on the prospect of a rate hike].  I mean, I suppose if I was an investor I might be hung up on it too. But I think that, you know, we’re here to generate as good outcomes as we can for Americans broadly in terms of employment and inflation. We’re not here to satisfy market participants. That’s really not what our goal of policy is. So I think it’s important to recognize that, you know, if we move or we don’t move in a particular meeting, we’re not talking about this huge, you know, cataclysmic event.

  • William C. Dudley I think we can be quite gentle as we go in terms of gradually removing monetary policy accommodation.

    [ October 12, 2016 ]

    "We’re at a point where the economic expansion has plenty of room to run. Inflation’s a little bit below our target, rather than above our target,” Dudley said. “So, I think we can be quite gentle as we go in terms of gradually removing monetary policy accommodation.”

    ...

    “You certainly want to go as far as you can,” Dudley told the Business Council of New York State on Wednesday in Albany, New York. “You don’t want to keep people unemployed just because you think you’re already at the full employment rate."

  • William C. Dudley There is a lot as well that is outside the Fed’s purview [following the 2007 financial crisis] that could have been done to make the U.S. economy perform better. This includes tax reform, job retraining programs and infrastructure investment.

    [ July 31, 2016 ]

    There is a lot as well that is outside the Fed’s purview [following the 2007 financial crisis] that could have been done to make the U.S. economy perform better. This includes tax reform, job retraining programs and infrastructure investment.

    Could things have been done differently in the U.S. in such a way that would have led to better outcomes? Absolutely. With the benefit of hindsight, we could have and should have been even more aggressive on the monetary policy side. While we made progress with some of the innovations on monetary policy that we eventually introduced—such as the open-ended purchase of $85 billion of Treasury and MBS securities per month—it would have been better if we had done this sooner.

    There is a lot as well that is outside the Fed’s purview that could have been done to make the U.S. economy perform better. This includes tax reform, job retraining programs and infrastructure investment.

    So, what can we do to bolster global growth in the future? The first is to undertake the necessary structural reforms to make our economies more efficient. Productivity growth is not preordained. The steps we take as countries to eliminate and lessen bottlenecks and improve our human and physical capital are important. The second is to ensure that our financial systems are well-functioning. Tremendous progress has been made globally in implementing higher capital and liquidity standards post-crisis. But we still see some important banking systems impaired by bad loans, low profitability and inadequate capital.

  • William C. Dudley I think it is premature to rule out further monetary policy tightening this year.

    [ July 31, 2016 ]

    I think it is premature to rule out further monetary policy tightening this year. As I said before, it depends on the data, broadly defined, and, as we all know, that is not something one can predict with any accuracy.

  • William C. Dudley   If it’s confined just to the United Kingdom, [the effects of the Brexit vote are] pretty small.  But if there is broad contagion through financial markets, if it leads to greater questions about the stability of the European Union, then it could have more significant consequences.

    [ July 5, 2016 ]

    If it’s confined just to the United Kingdom, [the effects of the Brexit vote are] pretty small. But if there is broad contagion through financial markets, if it leads to greater questions about the stability of the European Union, then it could have more significant consequences.

  • William C. Dudley I think it’s important to emphasize, it’s not just how the economic data comes in, but how that economic data then influences your expectations about the future outlook. So data that affects the outlook is what really matters.

    [ May 19, 2016 ]

    So it’s not just about is the economy evolving in line with your forecast, but how confident you are about that continuing in the future. I think it’s important to emphasize, it’s not just how the economic data comes in, but how that economic data then influences your expectations about the future outlook. So data that affects the outlook is what really matters.

  • William C. Dudley To reiterate what some of my colleagues have said, June is definitely a live meeting, but obviously what we do depends on how the economy is going to evolve... A few days ago I think there was a pretty strong sense among the FOMC membership ... that the market was not putting in a sufficient probability mass on the notion of tightening at either the June or July meeting. So I’m actually quite pleased to see that that possibility has moved up.

    [ May 19, 2016 ]

    To reiterate what some of my colleagues have said, June is definitely a live meeting, but obviously what we do depends on how the economy is going to evolve... A few days ago I think there was a pretty strong sense among the FOMC membership ... that the market was not putting in a sufficient probability mass on the notion of tightening at either the June or July meeting. So I’m actually quite pleased to see that that possibility has moved up.

    To reiterate what some of my colleagues have said, June is definitely a live meeting, but obviously what we do depends on how the economy is going to evolve. Looking at the market expectations, I think it looks like June is roughly one in three and a tightening through the July meeting looks like about 60% if you look at the federal funds futures market. I don’t know if that’s precisely the right probability, I would have to go around and talk to all of my colleagues, but clearly looking back a few days ago I think there was a pretty strong sense among the FOMC membership, and you can see this in their commentary, that the market was not putting in a sufficient probability mass on the notion of tightening at either the June or July meeting. So I’m actually quite pleased to see that that possibility has moved up.
    ...
    If I get convinced that my own forecast is sort of on track, then I think tightening in the summer, with a June/July timeframe, is really a reasonable timeframe.

  • William C. Dudley During the crisis, I also believe we could have done more to explain the motivations for our extraordinary interventions. At times, while the motivations and objectives might have been obvious to us, they weren’t always as readily apparent to Congress or to the public. I think this created uncertainty about what we were trying to accomplish, and made it more difficult for outside observers to assess the appropriateness of our actions and our motives.

    [ March 31, 2016 ]

    In terms of transparency, I do think it is a fair critique that, in the past, the Federal Reserve has not always been sufficiently transparent... During the crisis, I also believe we could have done more to explain the motivations for our extraordinary interventions. At times, while the motivations and objectives might have been obvious to us, they weren’t always as readily apparent to Congress or to the public. I think this created uncertainty about what we were trying to accomplish, and made it more difficult for outside observers to assess the appropriateness of our actions and our motives.

  • William C. Dudley On balance, I am somewhat less confident than I was before.

    [ February 29, 2016 ]

    I still anticipate that the combination of decreasing resource slack and anchored longer-term inflation expectations will contribute to inflation rising to our 2 percent objective over the medium term. Even so, because of the more persistent effects of energy and commodity price declines and U.S. dollar appreciation, the return of inflation to that goal may be slower than I earlier anticipated. This does not deny the possibility of some upside surprise―such as a sharp upswing in wage growth triggered by low unemployment. But, on balance, I am somewhat less confident than I was before.

  • William C. Dudley In terms of the economic outlook, the situation does not appear to have changed much since the last FOMC meeting.

    [ January 15, 2016 ]

    In terms of the economic outlook, the situation does not appear to have changed much since the last FOMC meeting. Some recent activity indicators have been on the softer side, pointing to a relatively weak fourth quarter for real GDP growth. But this needs to be weighed against the strength evident in the U.S. labor market. I continue to expect that the economy will expand at a pace slightly above its long-term trend in 2016. In other words, I anticipate sufficient economic strength to push the unemployment rate down a bit further and to more fully utilize the nation’s labor resources.

  • William C. Dudley After lift-off the upward trajectory of the short-term rates is likely to be quite shallow.

    [ November 12, 2015 ]

    After lift-off the upward trajectory of the short-term rates is likely to be quite shallow.

  • William C. Dudley What is important for attaining the Federal Reserve’s mandated objectives is not that monetary policy is described in terms of a formal prescriptive rule, but rather that the FOMC’s intentions and strategy are well understood by the public.

    [ October 15, 2015 ]

    What is important for attaining the Federal Reserve’s mandated objectives is not that monetary policy is described in terms of a formal prescriptive rule, but rather that the FOMC’s intentions and strategy are well understood by the public. This argues for clear communication through the FOMC meeting statements and minutes, the FOMC’s statement concerning its longer-term goals and monetary policy strategy, the Chair’s FOMC press conferences and testimonies before Congress, and speeches by the Chair and other FOMC participants. But it also is important that the strategy be the “right” reaction function. This means a policy approach that responds appropriately to important factors beyond the two parameters of the Taylor Rule—the output gap estimate and the rate of inflation.

  • William C. Dudley [A]t this moment the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago. But normalization could become more compelling by the time of the meeting...

    [ August 26, 2015 ]

    [A]t this moment the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago. But normalization could become more compelling by the time of the meeting as we get additional information on how the U.S. economy is performing and more information on international and financial market developments, all of which are important in shaping the U.S. economic outlook.

    ...

    I'm far away from thinking about quantitative easing... The U.S. economy is performing quite well.

  • William C. Dudley It would not shock me if we decided to lift off in September, or it wouldn’t shock me if the data were a little softer and it caused us to wait.

    [ June 26, 2015 ]

    “If we hit 2.5 per cent growth in the second quarter and it looks like the third quarter is shaping up for something similar, then I think you are on a firm enough track that you would imagine you would have made sufficient progress in our two tests [for a rate hike], certainly by the end of the year,” he said.
    “It would not shock me if we decided to lift off in September, or it wouldn’t shock me if the data were a little softer and it caused us to wait.”

    ...

    The Fed has been guiding investors that its rate hikes will come at a “gradual” pace as it seeks to avoid a repeat of the 2013 “taper tantrum”, in which yields spiked sharply on the back of signals of reduced stimulus from former Fed chairman Ben Bernanke.
    Mr Dudley suggested his definition of “gradual” was lifting rates at around half the pace in the Fed’s 2004-07 hiking cycle, when they rose a quarter point at every meeting — but he stressed that the statement was not a “commitment in any way” by the Fed. “Our expectations will evolve in light of the incoming economic information.”

  • William C. Dudley With the benefit of hindsight, one could argue that the Federal Reserve should have raised short-term interest rates more aggressively over [the 2004-07] period.

    [ June 5, 2015 ]

    With the benefit of hindsight, one could argue that the Federal Reserve should have raised short-term interest rates more aggressively over [the 2004-07] period.

  • William C. Dudley If the labor market continues to improve and inflation expectations remain well-anchored, then I would expect -- in the absence of some dark cloud gathering over the growth outlook -- to support a decision to begin normalizing monetary policy later this year.

    [ June 5, 2015 ]

    If the labor market continues to improve and inflation expectations remain well-anchored, then I would expect -- in the absence of some dark cloud gathering over the growth outlook -- to support a decision to begin normalizing monetary policy later this year.

  • William C. Dudley William Dudley - While simple policy rules provide useful benchmarks for policymakers, their very virtuetheir simplicity is also a significant shortcoming.  

    [ February 27, 2015 ]

    I will argue that in the U.S. context, a Taylor-type ruleeven an inertial oneis an incomplete guide for policy because it does not explicitly include financial variables that are important factors in the transmission of monetary policy to the real economy. Finally, I will briefly comment on the issue of secular stagnation and my views on the long-term equilibrium real federal funds rate.
    ...
    While simple policy rules provide useful benchmarks for policymakers, their very virtuetheir simplicityis also a significant shortcoming.

  • William C. Dudley Market expectations that lift-off will occur around mid-2015 seem reasonable to me. Although that could change depending on how the economy evolves, my views on when do not differ appreciably from the most recent primary dealer and buy-side surveys undertaken by the New York Fed prior to the October FOMC meeting.

    [ December 1, 2014 ]

    Market expectations that lift-off will occur around mid-2015 seem reasonable to me. Although that could change depending on how the economy evolves, my views on when do not differ appreciably from the most recent primary dealer and buy-side surveys undertaken by the New York Fed prior to the October FOMC meeting.

    Will these forecasts once again turn out to be too optimistic? Subject to a few caveats that I discuss later, my view is that the likelihood of another disappointment has lessened. The consensus forecast seems like a reasonable expectation, in part, because several of the headwinds restraining U.S. economic activity in recent years have subsided. First, the housing sector is currently in much better balance

  • William C. Dudley In assessing inflation expectations, I currently put more weight on survey-based measures of inflation expectations as opposed to market-based measures.

    [ November 13, 2014 ]

    In assessing inflation expectations, I currently put more weight on survey-based measures of inflation expectations as opposed to market-based measures. Survey-based measures have been generally stable, consistent with inflation expectations remaining well-anchored. However, market-based measures, such as those based on breakeven inflation derived from the difference between yields on nominal versus Treasury Inflation-Protected Securities (TIPS), have registered declines over the past few months, even on a 5-years forward basis. Research done by my staff suggests that much of this decline in market-based measures of inflation compensation reflects a fall in the inflation risk premiumthat is, what investors are willing to pay to protect themselves against inflation risk. Adjusting for the fall in the inflation risk premium, inflation expectations appear to have declined much less than implied by TIPS inflation breakeven measures.

  • William C. Dudley given the still high level of long-term unemployment, there could be a significant benefit to allowing the economy to run slightly hot for a while in order to get these people employed again.

    [ November 13, 2014 ]

    In considering the appropriate timing of lift-off, there are three important reasons to be patient. First, the Committee is still undershooting both its employment and inflation objectives. Unemployment is too high and inflation is too low. Thus, monetary policy needs to be very accommodative in order to close these gaps relative to the Committees objectives. Second, when interest rates are at the zero lower bound, the risks of tightening a bit too early seem considerably greater than the risks of tightening a bit too late. A premature tightening might lead to financial conditions that are too tight, resulting in a weaker economy and an aborted lift-off. This would be problematic in that it would harm the Feds credibility and, more importantly, would be difficult to rectify. The U.S. experience during the Great Depression and the Japanese experience over the past two decades illustrate the risks of raising interest rates too soon, especially when inflation is running below the central banks objective. Finally, given the still high level of long-term unemployment, there could be a significant benefit to allowing the economy to run slightly hot for a while in order to get these people employed again. If they are not employed relatively soon, their job skills will erode further, reducing their long-term prospects for employment and, therefore, the productive capacity of the U.S. economy.

    More From:

    See Also:

    Source:

    http://www.newyorkfed.org/newsevents/speeches/2014/dud141113.html

    Venue:

    Central Bank of the United Arab Emirates
  • William C. Dudley Given the dollars role as the global reserve currency, the Federal Reserve has a special responsibility to manage U.S. monetary policy in a way that helps promote global financial stability.

    [ November 7, 2014 ]

    [G]iven the dollars role as the global reserve currency, the Federal Reserve has a special responsibility to manage U.S. monetary policy in a way that helps promote global financial stability.

    Like other central banks, our monetary policy mandate has a domestic focus. But, our actions often have global implications that feed back into the U.S. economy and financial markets, and we need to always keep this in mind. For most of us, the market volatility that we saw during the so-called taper tantrum in the spring and summer of 2013 still remains fresh in our minds. EME financial markets were hit hardest, with declines in equity prices, a widening in sovereign debt spreads and a sharp increase in foreign exchange rate volatility. In the U.S., we saw a spike in Treasury yields, with the 10-year rate rising by more than 100 basis points from early May before peaking in early September.

    Most commentary about this period has focused on the shift in expectations with respect to U.S. monetary policyand, in particular, to uncertainty about the timing and implications of Fed taperingas the catalyst for these moves. This focus seems generally right to me.

    Looking ahead, it seems likely that markets will remain focused on vulnerabilities that they might have ignored prior to the taper tantrum in 2013. The greater premium on strong fundamentals, policy coherence and predictability will likely remain. There will be no one right answer in managing the trade-offs that come with the changed environment, and adjustment will sometimes be difficult. Moreover, we will undoubtedly experience further bumps in the road. The renewed volatility we saw last month is evidence enough of that. Yet, I think we can remain generally optimistic on the outlook so long as market participants continue to appropriately discriminate across countries, rather than treating EMEs as a homogenous group.

    Furthermore, many EMEs generally appear to be better equipped today to handle the Fed's prospective exit from its exceptional policy accommodation than they were in past tightening cycles

    The impact that changes in Fed policy can have beyond our borders has led to calls for us to do more to internalize those impacts, or even further, to internationally coordinate policymaking. As Ive already noted, Fed policies have significant effects internationally, given the central place of U.S. markets in the global financial system and the dollars status as the global reserve currency. In pursuing our policy responsibilities, we seek to conduct policy transparently and based on clear principles. We are mindful of the global effects of Fed policy. Promoting growth and stability in the U.S., I believe, is the most important contribution we can make to growth and stability worldwide.

    The largest problems that countries create for others often emanate from getting policy wrong domestically. Recession or instability at home is often quickly exported. Equally important, growth and stability abroad makes all our jobs easier. This means that there are externalities in the work we do, so that more effective fulfillment of our domestic mandates helps to bring us to a better place collectively. Ensuring global growth and stability is and will remain our joint and common endeavor.

    More From:

    See Also:

    Source:

    http://www.newyorkfed.org/newsevents/speeches/2014/dud141107.html

    Venue:

    International Symposium of the Banque de France
  • William C. Dudley if those of you here today as stewards of these large financial institutions do not do your part in pushing forcefully for change across the industry, then bad behavior will undoubtedly persist. If that were to occur, the inevitable conclusion will be reached that your firms are too big and complex to manage effectively. In that case, financial stability concerns would dictate that your firms need to be dramatically downsized and simplified so they can be managed effectively.

    [ October 20, 2014 ]

    In recent years, there have been ongoing occurrences of serious professional misbehavior, ethical lapses and compliance failures at financial institutions. This has resulted in a long list of large fines and penalties, and, to a lesser degree than I would have desired employee dismissals and punishment.

    I reject the narrative that the current state of affairs is simply the result of the actions of isolated rogue traders or a few bad actors within these firms. As James OToole and Warren Bennis observed in their Harvard Business Review article about corporate culture: Ethical problems in organizations originate not with a few bad apples but with the barrel makers. That is, the problems originate from the culture of the firms, and this culture is largely shaped by the firms leadership. This means that the solution needs to originate from within the firms, from their leaders.

    For the economy to achieve its long-term growth potential, we need a sound and vibrant financial sector. Financial firms exist, in part, to benefit the public, not simply their shareholders, employees and corporate clients. Unless the financial industry can rebuild the public trust, it cannot effectively perform its essential functions. For this reason alone, the industry must do much better.

    In conclusion, if those of you here today as stewards of these large financial institutions do not do your part in pushing forcefully for change across the industry, then bad behavior will undoubtedly persist. If that were to occur, the inevitable conclusion will be reached that your firms are too big and complex to manage effectively. In that case, financial stability concerns would dictate that your firms need to be dramatically downsized and simplified so they can be managed effectively.

    More From:

    See Also:

    Source:

    http://www.newyorkfed.org/newsevents/speeches/2014/dud141020a.html

    Venue:

    Workshop on Reforming Culture and Behavior in the Financial Services Industry
  • William C. Dudley We have 17 participants of the FOMC right now. A lot of them are all over the country. And so the ability to get all this group together to agree on a precise path of interest rates under the baseline versus on other forecasts I think that would be actually quite difficult to do in a very timely way.

    [ September 22, 2014 ]

    Well you could try to present baseline and alternative {fed funds} forecasts, but I think again I think the problem with that is that it overstates the degree of certainty about that path relative to that forecast. I think that the reality is one of the problems of the summary of economic projections is that it's really focused on modes, what's people's modal outlook for interest rates. And the reality is highly likely that the modes will not actually be realized.

    So I think the second problem of course you have is that and we have 17 members right now of the - of participants of the FOMC. A lot of them are all over the country. And so the ability to get all this group together to agree on a precise path of interest rates under the baseline versus on other forecasts I think that would be actually quite difficult to do in a very timely way.

    So I think central banks around the world that have actually published forecasts typically they have a monetary policy committee that's quite small. And usually it's located in one place.

    More From:

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    Venue:

    Bloomberg Interview
  • William C. Dudley  I think one of the things that makes me less happy is the fact that the crisis was really about debtors. And then the monetary policy response has really been hard on savers. So getting out of the zero lower bound would also be a good thing for savers. So I think my view is I want to get off the zero lower bound as soon as I think it's appropriate because I think being there is just uncomfortable. And I think it's also it would be nice to actually for savers actually to get a positive return.

    [ September 22, 2014 ]

    Well I think being at the zero lower bound is not a very comfortable place to be because, one, the tools of monetary policy at the zero lower bound are more limited.

    Number two, you also have some consequences for the economy. I think one of the things that makes me less happy is the fact that the crisis was really about debtors. And then the monetary policy response has really been hard on savers. So getting out of the zero lower bound would also be a good thing for savers. So I think my view is I want to get off the zero lower bound as soon as I think it's appropriate because I think being there is just uncomfortable. And I think it's also it would be nice to actually for savers actually to get a positive return.

    More From:

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    Venue:

    Bloomberg Interview
  • William C. DudleyObviously as the dollar moves that affects the appropriateness of a given monetary policy to achieve those objectives. And we certainly take it on board just like we take on board what's happening to the stock market, what's happening to the bond market, what's happening to credit spreads, what's happening to credit availability. All those factors sort of drive our assessment of what's happening to financial conditions. And then that influences our economic outlook. And then that in turn then influences the monetary policy response.

    [ September 22, 2014 ]

    More From:

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    Venue:

    Bloomberg Interview
  • William C. DudleyShort-term funding of longer-term assets is inherently unstable, especially in the presence of information and coordination problems.

    [ August 13, 2014 ]

    More From:

    See Also:

    Source:

    http://www.newyorkfed.org/newsevents/speeches/2014/dud140813.html

    Venue:

    Workshop on the Risks of Wholesale Funding
  • William C. Dudley Market expectations are that the Federal Reserve will start to raise short-term interest rates around the middle of 2015... That sounds to me like a reasonable forecast, but forecasts often go astray, so I wouldnt put too much weight on that particular set of forecasts.

    [ June 24, 2014 ]

    Market expectations are that the Federal Reserve will start to raise short-term interest rates around the middle of 2015... That sounds to me like a reasonable forecast, but forecasts often go astray, so I wouldnt put too much weight on that particular set of forecasts.

    The world is highly uncertain. In the current environment its still very, very appropriate to continue to follow very accommodative monetary policy.

  • William C. Dudley We still don't have well developed macro-models that incorporate a realistic financial sector.

    [ January 4, 2014 ]

    But there is much more work to do. In particular, I think we have just scratched the surface in understanding how developments in one area, such as capital and liquidity requirements for large, complex financial institutions, affect other areas, such as effective monetary policy implementation. We still don't have well developed macro-models that incorporate a realistic financial sector. We don't understand fully how large-scale asset purchase programs work to ease financial market conditionsis it the effect of the purchases on the portfolios of private investors, or alternatively is the major channel one of signaling?

  • William C. Dudley But, I have to admit that I am getting more hopeful. Not only do we have some better data in hand, but also the fiscal drag, which has been holding the economy back, is likely to abate considerably over the next few years at the same time that the fundamental underpinnings of the economy are improving.

    [ November 18, 2013 ]

    But, I have to admit that I am getting more hopeful. Not only do we have some better data in hand, but also the fiscal drag, which has been holding the economy back, is likely to abate considerably over the next few years at the same time that the fundamental underpinnings of the economy are improving.

  • William C. Dudley If industry is unable to play its role in achieving a holistic solution {to repo market reform}, regulators may find themselves forced to employ the specific policy tools at their disposal in their respective purviews to address the fire sale risk.

    [ October 4, 2013 ]

    If industry is unable to play its role in achieving a holistic solution {to repo market reform}, regulators may find themselves forced to employ the specific policy tools at their disposal in their respective purviews to address the fire sale risk.

    The diversity of participants in the tri-party repo market has made it difficult to move forward quickly with a market solution that addresses the risk I have outlined. Industry leadership is absolutely critical to overcoming these challenges. If industry is unable to play its role in achieving a holistic solution, regulators may find themselves forced to employ the specific policy tools at their disposal in their respective purviews to address the fire sale risk. While such an approach may indeed enhance the overall stability of this market, it could also lead to unintended consequences that include reducing the efficacy of the critical role played by this market in supporting the broader financial system.



    More From:

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    Source:

    http://www.newyorkfed.org/newsevents/speeches/2013/dud131004.html

    Venue:

    Federal Reserve Bank of New York
  • William C. Dudley To begin to taper, I have two tests that must be passed: (1) evidence that the labor market has shown improvement, and (2) information about the economy’s forward momentum that makes me confident that labor market improvement will continue in the future. So far, I think we have made progress with respect to these metrics, but have not yet achieved success.

    [ September 23, 2013 ]

    To begin to taper, I have two tests that must be passed: (1) evidence that the labor market has shown improvement, and (2) information about the economy’s forward momentum that makes me confident that labor market improvement will continue in the future. So far, I think we have made progress with respect to these metrics, but have not yet achieved success.

    With respect to the first metric, {the} decline in the unemployment rate overstates the degree of improvement.



    With respect to the second metric, …—confidence that the economic recovery is strong enough to generate sustained labor market improvement—I don’t think we have yet passed that test. The economy has not picked up forward momentum and a 2 percent growth rate—even if sustained—might not be sufficient to generate further improvement in labor market conditions. Moreover, fiscal uncertainties loom very large right now as Congress considers the issues of funding the government and raising the debt limit ceiling. Assuming no change in my assessment of the efficacy and costs associated with the purchase program, I’d like to see economic news that makes me more confident that we will see continued improvement in the labor market. Then I would feel comfortable that the time had come to cut the pace of asset purchases.



    I do believe that we are making progress towards our objectives of maximum sustainable employment in the context of price stability. The economic fundamentals are improving and I expect that the healing process will continue in the coming months and years. At the same time, it is important to recognize that the financial crisis generated significant headwinds that are only slowly abating. We must push against these headwinds forcefully to best achieve our objectives.

  • William C. Dudley A rise in short-term rates is very likely to be a long way off.  Not only will it likely take considerable time to reach the FOMC’s 6.5 percent unemployment rate threshold, but also the FOMC could wait considerably longer before raising short-term rates.  The fact that inflation is coming in well below the FOMC’s 2 percent objective is relevant here. 

    [ July 2, 2013 ]

    As Chairman Bernanke stated in his press conference following the FOMC meeting, if the economic data over the next year turn out to be broadly consistent with the outlooks that the FOMC sees as most likely, which are roughly similar to the outlook I have already laid out, the FOMC anticipates that it would be appropriate to begin to moderate the pace of purchases later this year. Under such a scenario, subsequent reductions might occur in measured steps through the first half of next year, and an end to purchases around mid-2014. Under this scenario, at the time that asset purchases came to an end, the unemployment rate likely would be near 7 percent and the economy’s momentum strengthening, supporting further robust job gains in the future.

    As I noted last week in our regional press briefing, a few points deserve emphasis. First, the FOMC’s policy depends on the progress we make towards our objectives. This means that the policy—including the pace of asset purchases—depends on the outlook rather than the calendar. The scenario I outlined above is only that—one possible outcome. Economic circumstances could diverge significantly from the FOMC’s expectations. If labor market conditions and the economy’s growth momentum were to be less favorable than in the FOMC’s outlook—and this is what has happened in recent years—I would expect that the asset purchases would continue at a higher pace for longer.

    ...

    [E]ven under this scenario, a rise in short-term rates is very likely to be a long way off.  Not only will it likely take considerable time to reach the FOMC’s 6.5 percent unemployment rate threshold, but also the FOMC could wait considerably longer before raising short-term rates.  The fact that inflation is coming in well below the FOMC’s 2 percent objective is relevant here.  Most FOMC participants currently do not expect short-term rates to begin to rise until 2015. 

  • William C. Dudley If the economic data over the next year turn out to be broadly consistent with the outlooks that the FOMC sees as most likely, the FOMC anticipates that it would be appropriate to begin to moderate the pace of purchases later this year. Under such a scenario, subsequent reductions might occur in measured steps through the first half of next year, and an end to purchases around mid-2014.

    [ June 27, 2013 ]

    If the economic data over the next year turn out to be broadly consistent with the outlooks that the FOMC sees as most likely, the FOMC anticipates that it would be appropriate to begin to moderate the pace of purchases later this year. Under such a scenario, subsequent reductions might occur in measured steps through the first half of next year, and an end to purchases around mid-2014. Under this scenario, at the time that asset purchases came to an end, the unemployment rate likely would be near 7 percent and the economy’s momentum strengthening, supporting further robust job gains in the future.

  • William C. Dudley Financial stability is a necessary prerequisite for an effective monetary policy.  There is a critical chain of linkages from monetary policy to banking and onwards to the real economy.  Financial stability is a necessary condition for those linkages to operate effectively.  Thus, it is a necessary condition for monetary policy to be able to achieve its economic objectives.  

    [ June 24, 2013 ]

    Financial stability is a necessary prerequisite for an effective monetary policy.  There is a critical chain of linkages from monetary policy to banking and onwards to the real economy.  Financial stability is a necessary condition for those linkages to operate effectively.  Thus, it is a necessary condition for monetary policy to be able to achieve its economic objectives.  

    More From:

    See Also:

    Source:

    http://www.newyorkfed.org/newsevents/speeches/2013/dud130624.html

    Venue:

    Bank for International Settlements Annual General Meeting
  • William C. Dudley I think three or four months from now you're going to have a much better sense of is the economy healthy enough to overcome the fiscal drag or not.

    [ May 21, 2013 ]

    I'm uncertain about what's going to happen to the economic outlook over the near term because I don't really understand really well how the tug-of-war between the fiscal drag and the improving economy are going to sort of work their way out over the next couple months. I think three or four months from now I think you're going to have a much better sense of is the economy healthy enough to overcome the fiscal drag or not.



    It's something that I certainly have my eye on, but I'm not very nervous about the fact that inflation's come in a little low relative to our 2 percent target because inflation expectations are still well-anchored. If inflation expectations were coming down, then I'd be a lot more concerned. If inflation expectations are well-anchored, what that means is inflation expectations are higher than the current rate of inflation, and so that'll tend to pull inflation back upwards a little bit.




  • William C. Dudley Because the outlook is uncertain, I cannot be sure which way—up or down—the next change will be. But at some point, I expect to see sufficient evidence to make me more confident about the prospect for substantial improvement in the labor market outlook.

    [ May 21, 2013 ]

    Because the outlook is uncertain, I cannot be sure which way—up or down—the next change will be. But at some point, I expect to see sufficient evidence to make me more confident about the prospect for substantial improvement in the labor market outlook. At that time, in my view, it will be appropriate to reduce the pace at which we are adding accommodation through asset purchases. Over the coming months, how well the economy fights its way through the significant fiscal drag currently in force will be an important aspect of this judgment.

    ....

    There is a risk is that market participants could overreact to any move in the process of normalization. Indeed, there is some risk that market participants could overreact even before normalization begins, when the pace of purchases is adjusted but the level of accommodation is still increasing month by month.11 Not only could such responses threaten financial stability, but also they might make it harder to calibrate monetary policy appropriately to the economic situation. We will need to think long and hard about how best to develop policy in a way that enables us to respond flexibly to a changing economic outlook, but in a way that is not disruptive to the economy.

  • William C. Dudley At some point, I expect that I will see sufficient evidence of improved economic momentum to lead me to favor gradually dialing back the pace of asset purchases. Of course, any subsequent bad news could lead me to favor dialing them back up again.

    [ April 16, 2013 ]

    At some point, I expect that I will see sufficient evidence of improved economic momentum to lead me to favor gradually dialing back the pace of asset purchases. Of course, any subsequent bad news could lead me to favor dialing them back up again. As Chairman Bernanke said in his press conference following the March FOMC meeting "when we see that the…situation has changed in a meaningful way, then we may well adjust the pace of purchases in order to keep the level of accommodation consistent with the outlook."

  • William C. Dudley Let me be clear. We must deal with the fire sale issue in tri-party repo and the heightened run risk it creates.

    [ February 1, 2013 ]

    Let me be clear. We must deal with the fire sale issue in tri-party repo and the heightened run risk it creates. I believe there are three potential ways forward, all of which are superior to the status quo. First, tri-party repo transactions could be restricted to open market operations (OMO) eligible collateral… Thus, one could construct an effective lender of last resort backstop for an OMO-eligible- only tri-party repo system.

    However, there are also some significant disadvantages to such an approach. The less liquid collateral could just migrate to be financed elsewhere, with associated run and fire sale risks… [T]his approach would do little to mitigate the risk of fire sales of a defaulted dealer’s collateral by its investors once a dealer is bankrupt.

    The second option is to have a mechanism or process to facilitate the orderly liquidation of a defaulted dealer’s collateral. One could imagine a mechanism that was funded by tri-party repo market participants and potentially backstopped by the central bank…

    Because no single market participant has a strong incentive to develop such a mechanism, however, sustained regulatory pressure may be required to reach such a solution. From the perspective of the tri-party repo borrowers and investors, the status quo undoubtedly is viewed as superior because neither group is forced to fully bear the externalities associated with their actions. Instead they anticipate that emergency liquidity would be made available in the event of a future systemic crisis.

    Third, if borrowers and investors did not embrace an orderly collateral liquidation mechanism, supervisory oversight could be brought to bear to limit the use of tri-party repo funding on the grounds that it is still an unstable source of funds. For example, the use of tri-party repo could be restricted unless borrowers demonstrated that there was an adequate means of orderly collateral liquidation upon the failure of a major dealer.

    More From:

    See Also:

    Source:

    http://www.newyorkfed.org/newsevents/speeches/2013/dud130201.html

    Venue:

    New York Bankers Association
  • William C. Dudley Monetary policy, while highly accommodative by historic standards, may still not have been sufficiently accommodative given the economic circumstances.

    [ October 15, 2012 ]

    I would give each of these four explanations some weight for why the recovery has been consistently weaker than expected. But I would add a fifth, monetary policy, while highly accommodative by historic standards, may still not have been sufficiently accommodative given the economic circumstances.

  • William C. Dudley I would be willing to consider tightening policy at a somewhat earlier stage if growth strengthened sufficiently to materially improve the medium-term outlook and substantially reduce tail risks, or if there was evidence of a genuine threat to medium-term inflation... In such a case, I would anticipate that the first step would be to bring in the late 2014 date of the policy guidance. 

    [ May 30, 2012 ]

    I would be willing to consider tightening policy at a somewhat earlier stage if growth strengthened sufficiently to materially improve the medium-term outlook and substantially reduce tail risks, or if there was evidence of a genuine threat to medium-term inflation, including a rise in inflation expectations. In such a case, I would anticipate that the first step would be to bring in the late 2014 date of the policy guidance.  This would effectively tighten financial conditions not only by changing the expected path of short-term interest rates, but also by bringing forward the expected start of balance sheet normalization.

    More From:

    See Also:

    Source:

    http://www.newyorkfed.org/newsevents/speeches/2012/dud120530.html

    Venue:

    Quarterly Regional Economic Press Briefing
  • William C. Dudley As long as the U.S. economy continues to grow sufficiently fast to cut into the nation’s unused economic resources at a meaningful pace, I think the benefits from further action are unlikely to exceed the costs.

    [ May 24, 2012 ]

    As long as the U.S. economy continues to grow sufficiently fast to cut into the nation’s unused economic resources at a meaningful pace, I think the benefits from further action are unlikely to exceed the costs.

  • William C. Dudley I believe it is also appropriate to continue to evaluate whether we could provide additional accommodation in a manner that produces more benefits than costs.

    [ January 6, 2012 ]

    [B]ecause the outlook for unemployment is unacceptably high relative to our dual mandate and the outlook for inflation is moderate, I believe it is also appropriate to continue to evaluate whether we could provide additional accommodation in a manner that produces more benefits than costs, regardless of whether action in housing is undertaken or not.

  • William C. Dudley “I don’t think the Fed has run out of bullets,” though there are “costs” associated with its options, Dudley said. The Fed could extend its commitment to keep interest rates low or could embark on another round of so-called quantitative easing, he said.

    [ October 24, 2011 ]

    “I don’t think the Fed has run out of bullets,” though there are “costs” associated with its options, Dudley said. The Fed could extend its commitment to keep interest rates low or could embark on another round of so-called quantitative easing, he said.

  • William C. Dudley U.S. economic performance is, at worst, mixed.

    [ August 19, 2011 ]

    William C. Dudley said U.S. economic performance is “at worst, mixed,” with negative news offset by loosening credit, firmer retail sales and stronger bank balance sheets.

    Banks are “in much better shape” than a year ago, with “huge liquidity buffers compared to where they were in 2008,” Dudley said today in response to an audience question after a speech in Lyndhurst, New Jersey.  Real-estate financing is “a little more available today than” 12 months ago.

  • William C. Dudley The statement issued by the FOMC earlier this week presents a sober assessment of the state of the U.S. economy.

    [ August 12, 2011 ]

    The statement issued by the FOMC earlier this week presents a sober assessment of the state of the U.S. economy...

    In light of the current outlook, the FOMC in its statement noted that we now anticipate that we are likely to keep short-term interest rates exceptionally low at least through mid-2013. We also discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. Further details on the discussion at the meeting will be available when the minutes are published in three weeks time. I will not comment on monetary policy any further today.

    More From:

    See Also:

    Source:

    http://www.newyorkfed.org/newsevents/speeches/2011/dud110812.html

    Venue:

    Quarterly Regional Economic Press Briefing
  • William C. Dudley We shouldn’t be overly enthusiastic about tightening monetary policy too early.

    [ April 11, 2011 ]

    We’re probably going to have excess slack in the U.S. labor market at least through the end of 2012, and that’s one reason that colored my view that we shouldn’t be overly enthusiastic about tightening monetary policy too early.

    As reported by Bloomberg News

    Dudley said that while the effect of higher oil prices on monetary policy depends on the circumstances, the rise in those prices had led to the U.S. economy losing "a little bit of momentum over the past two months."   The rise in oil prices is "a negative for the growth outlook because it does crimp real incomes and it will probably have some effect on consumer confidence," Dudley added.

    As reported by Dow Jones Newswires

     

  • William C. Dudley The recovery is still tenuous.

    [ April 1, 2011 ]

    Moreover, the rise in commodity prices is likely to put further upward pressure on headline inflation in the coming months. Provided commodity prices level off around current levels, the effect on inflation should be transitory. But we will need to ensure that commodity price pressures do not cause inflation expectations to become unmoored. If that were to occur, it would be more difficult to keep inflation in check.

    To sum up, economic conditions have improved in the past year. Yet, the recovery is still tenuous. And, we are still far from the mark with regard to the Fed's dual mandate. In particular, the unemployment rate is much too high.

  • William C. Dudley A stronger recovery with more rapid progress toward our dual mandate objectives is what we have been seeking. This is welcome and not a reason to reverse course.

    [ March 11, 2011 ]

    It is important to emphasize that we at the Federal Reserve have been expecting the economy to strengthen. We provided additional monetary policy stimulus via the asset purchase program to help ensure that the recovery regained momentum. A stronger recovery with more rapid progress toward our dual mandate objectives is what we have been seeking. This is welcome and not a reason to reverse course.

  • William C. Dudley We agree with that, that we don't think that this large scale asset purchase program's going to have a huge, powerful effect on the U.S. economy.

    [ November 16, 2010 ]

    You know, I think there's sorta two sort of critiques of the large scale asset purchase program. One, it won't be effective. It doesn't do that much. And-- and we agree with that, that we don't think that this large scale asset purchase program's going to have a huge, powerful effect on-- on the U.S. economy.

    And two, I think there's a lotta concern about exit. Once-- when the time comes and the U.S. economy finally does pick up speed and inflation starts to rise, will we-- will we be-- will-- will-- will we be able to exit from this program smoothly without a long term inflation problem? And I think the answer to that second question is really critical. And our answer to that question is very much yes.

  • William C. Dudley Viewed through the lens of the Federal Reserve’s dual mandate—the pursuit of the highest level of employment consistent with price stability, the current situation is wholly unsatisfactory.. I conclude that further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.

    [ October 1, 2010 ]

    Viewed through the lens of the Federal Reserve’s dual mandate—the pursuit of the highest level of employment consistent with price stability, the current situation is wholly unsatisfactory. Given the outlook that the upturn appears likely to strengthen only gradually, it will likely be several years before employment and inflation return to levels consistent with the Federal Reserve’s dual mandate.

    ...

    We have tools that can provide additional stimulus at costs that do not appear to be prohibitive. Thus, I conclude that further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.

    More From:

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    Source:

    http://www.newyorkfed.org/newsevents/speeches/2010/dud101001.html

    Venue:

    Society of American Business Editors and Writers Fall Conference, City University of New York, Graduate School of Journalism
  • William C. Dudley The federal funds rate needs to be exceptionally low for an extended period to contribute to easier financial conditions to support economic activity.

    [ April 7, 2010 ]

    The federal funds rate needs to be exceptionally low for an extended period to contribute to easier financial conditions to support economic activity... In the current environment, we are not getting the job gains that we would like to get. We would like to see employment gains much more substantially than what we’ve gotten. What that tells us is that monetary policy needs to be on a very easy setting right now.

  • William C. Dudley [Testing of reverse-repurchase agreements] could be fairly large, because the one question we’re going to have to answer is how fast can we drain a large amount of reserves.  That might affect the timing of when we actually finally act.

    [ April 1, 2010 ]

    Testing of reverse-repurchase agreements] could be fairly large, because the one question we’re going to have to answer is how fast can we drain a large amount of reserves.  That might affect the timing of when we actually finally act.

  • William C. Dudley We made a very small technical change by raising the discount rate.

    [ February 19, 2010 ]

    "We made a very small technical change" by raising the discount rate, Dudley said. "The action yesterday was really an action about the improvement in banks" and reflected that these institutions no longer need this emergency source of cheap funding the way they did during the depths of the financial crisis, the official said.

    The discount rate increase "is not at all a signal of any imminent tightening" in monetary policy, and the Fed's commitment to keep rates very low for an extended period "is still very much in place," Dudley said. He added any increase in the short-term rates that affect the economy is "off in the future."

    As reported by Dow Jones Newswires

     

  • William C. Dudley So what I want to stress is extended {period} means at least six months. It could be a year from now… two years from now. It’s going depend on how the economy develops.

    [ January 13, 2010 ]

    [W]e said we would keep short term rates low, exceptionally low for an extended period.  So until we change that, that’s where we are. Short term rates are going to stay low for a considerable period of time to come... among my very informal set of people that I asked that question they said that “extended” in their minds means at least six months... So what I want to stress is extended means at least six months. It could be a year from now… two years from now. It’s going depend on how the economy develops.

  • William C. Dudley Although it is still too early to say the TALF has been a resounding success, we at the Fed are encouraged by the results so far.

    [ June 4, 2009 ]

    Although it is still too early to say the TALF has been a resounding success, we at the Fed are encouraged by the results so far.

    More From:

    See Also:

    Source:

    http://www.newyorkfed.org/newsevents/speeches/2009/dud090604.html

    Venue:

    Securities Industry and Financial Markets Association and Pension Real Estate Association's Public-Private Investment Program Summit
  • William C. Dudley At the moment, the PPIF and 'good bank/bad bank' concept are kissing cousins, with the PPIF leading the race.   But I don't think we'd rule out 'good bank/bad bank' formulations at individual institutions.

    [ March 6, 2009 ]

    Also Friday, Dudley said that even though policymakers are focusing more on creating a Public-Private Investment Fund, there is still life for the concept of a "bad bank" that would relieve institutions of the worst assets plaguing their balance sheets.

    "At the moment, the PPIF and 'good bank/bad bank' concept are kissing cousins, with the PPIF leading the race," he said. "But I don't think we'd rule out 'good bank/bad bank' formulations at individual institutions."