Fed's Dudley Says U.S. Economy's Status `Wholly Unsatisfactory'
Federal Reserve Bank of New York President William Dudley
Andrew Harrer/Bloomberg
Federal Reserve Bank of New York President William Dudley, seen here, said, “The current situation is wholly unsatisfactory.”
Federal Reserve Bank of New York President William Dudley, seen here, said, “The current situation is wholly unsatisfactory.” Photographer: Andrew Harrer/Bloomberg
Federal Reserve Bank of New York President William Dudley said his Oct. 1 assertion that the Fed will probably need to take action to bring down joblessness and address a too-low inflation rate “still stands.”
The U.S. unemployment rate is “unacceptably high” and inflation is “too low,” Dudley said to reporters today, affirming the points of a prior speech. “I feel very comfortable with what I said on Oct. 1,” he said during a press briefing on the regional economy at the New York Fed.
Central bankers are considering measures to stimulate growth in the U.S., and Fed Chairman Ben S. Bernanke said last week that a second round of unconventional monetary easing may be warranted because of low inflation and an unemployment rate that is holding near 10 percent.
“The current situation is wholly unsatisfactory,” Dudley said in a speech at the New York Fed. He didn’t discuss details of potential Fed actions such as additional large-scale Fed purchases of Treasuries. “Confidence in the economy remains quite low,” he said.
“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” for stable prices and maximum employment, he said.
Policy makers can support the economy through “critical reforms that make the financial system safer and accommodative monetary policy” that lowers mortgage costs and makes it more attractive for businesses to invest and create jobs, said Dudley, 57, who serves as vice chairman of the Federal Open Market Committee.
Close to Zero
After lowering interest rates almost to zero and buying $1.7 trillion of securities, the Fed is debating expanding its balance sheet by purchasing Treasuries and strategies for raising inflation expectations, according to the minutes of the FOMC’s Sept. 21 meeting.
While the National Bureau of Economic Research said last month that the worst U.S. recession since the Great Depression ended in June 2009, economic growth slowed to an annualized 1.7 percent rate in the second quarter from 3.7 percent in the first three months of the year. The growth figures are adjusted for changes in prices; nominal gross domestic product doesn’t adjust for inflation.
Stocks slid, dragging the MSCI World Index down from a six- month high, as China raised interest rates and Apple Inc.’s profit forecast missed analyst estimates. The MSCI gauge of equities in developed nations sank 1.4 percent, the most in almost two months, as of 9:37 a.m. in New York. The Standard & Poor’s 500 Index slid 1.2 percent to 1,170.19.
Foreclosure Review
The Fed is working with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. to review the foreclosure practices, governance and documentation at mortgage servicers, Dudley said.
“We want to ensure that the housing finance business is supported by robust back-office operations -- for processing of new mortgages as well as foreclosures -- so that buyers of homes and investors in mortgage securities have full confidence in the process,” Dudley said.
A probe by attorneys general in all 50 states focusing on faulty foreclosure documents has raised concern that lenders will be forced to buy back billions of dollars of loans from investors.
“We are monitoring developments closely in order to evaluate any potential impact on the housing market, financial institutions and the overall economy,” he said.
The economies of New York state and New York City are recovering, Dudley said, while “New Jersey’s economy remains essentially flat.”
To contact the reporter on this story: Caroline Salas in New York at csalas1@bloomberg.net; Scott Lanman in Washington at slanman@bloomberg.net.
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net
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