Federal Reserve Bank of New York President William C. Dudley said the U.S. expansion will probably continue at a “moderate” pace and that additional stimulus likely won’t be needed unless the economy falters.
“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,” Dudley said today in the prepared text for a speech in New York.
Dudley, vice chairman of the policy-setting Federal Open Market Committee, reinforced the view expressed at the panel’s April meeting, when several policy makers said slowing economic growth or rising risks to their outlook could warrant additional accommodation, according to the minutes of the gathering. He said he would favor more easing if the labor market stagnates, the threat of deflation increases or risks to growth were to rise substantially, reiterating remarks made last week.
The pace of growth has been “disappointing” and “the headwinds retarding recovery are well known,” Dudley said. Consumers continue to deleverage, housing “remains depressed” and fiscal policy is “restrictive,” he said.
Still, some of those headwinds are subsiding as employment growth has improved and credit conditions are easing, he said. “For these reasons, I expect that growth will gradually strengthen over the next few years.”
Smallest in Six Months
A Labor Department report on June 1 may show job growth picked up this month. Employers probably added 150,000 workers to payrolls in May, according to the median estimate in a Bloomberg News survey of economists, compared with a gain of 115,000 in April that was the smallest in six months.
The FOMC said last month it planned to keep its benchmark interest rate near zero until at least late 2014, reiterating a plan announced in January. The Fed has kept the rate near zero since December 2008 and bought $2.3 trillion of bonds in two rounds of asset purchases.
Dudley endorsed the current FOMC policy, including the 2014 interest-rate plan. He said he “would be willing to consider tightening policy at a somewhat earlier stage if growth strengthened sufficiently” or “if there was evidence of a genuine threat to medium-term inflation.” Under those circumstances, he said he would expect “the first step would be to bring in the late 2014 date of the policy guidance.”
Dudley said he anticipates inflation to “remain moderate and close to our objective” of 2 percent. The economy “continues to operate with significant slack” and inflation expectations “remain well-anchored,” he said.
There have also been “temporary factors” affecting inflation, including higher commodity costs, “upward pressure” on rents and higher prices for imported goods such as clothing, he said. The personal consumption expenditures price index climbed 2.1 percent for the 12 months through March.
If more easing is needed, the Fed could expand its balance sheet with another asset-purchase program or extend the duration of its Treasury portfolio, Dudley said.