Dudley Says More Needs to Be Done to Aid EU, U.S. Growth

New York Federal Reserve Bank President William C. Dudley said European economic weakness and U.S. budget woes mean “more needs to be done” to shore up the global economy and financial regulation.

“In the United States, the good news is that the economic outlook appears to be gradually improving,” Dudley said today at a conference in New York. “For Europe, the near-term macroeconomic outlook seems less bright.”

Dudley’s remarks show central bankers’ frustration with the slow pace of economic recovery on both sides of the Atlantic following the worst recession since the Great Depression. Efforts to revive growth through monetary stimulus have been offset in part by budget cutting from fiscal policy makers.

“The good news is that the peripheral countries have made substantial efforts to bring down their structural budget deficits,” he said. His remarks on the U.S. economy were similar to those in his speeches last week in Staten Island and in March to the Economic Club of New York.

“The household sector is far along in the deleveraging process, the housing sector is recovering, the banking system is healthier and credit conditions are easing, the corporate sector is highly profitable and awash in cash,” Dudley said today in his assessment of the U.S. economy.

Dudley has expressed support for continuing Chairman Ben S. Bernanke’s $85 billion a month of bond purchases, especially after the March jobs report from the Labor Department showed the unemployment rate fell to 7.6 percent, as people abandoned the labor force, and the pace of employment creation slowed from the 268,000 jobs added in February.

‘Fiscal Restraint’

The slowdown, “along with the large amount of fiscal restraint hitting the economy now, makes me more cautious,” Dudley said in a speech last week. “We have seen only a moderate improvement in labor market conditions over the past six months or so.”

“Monetary policy has been effective at fostering easier financial market conditions,” Dudley said today at the Transatlantic Economic Interdependence and Policy Challenges conference, cosponsored by the New York Fed and the European Commission.

“Nevertheless, the United States could be doing better,” Dudley said. “The U.S. fiscal policy program, for example, does not appear well-calibrated to the current set of economic circumstances. We have too much fiscal restraint in the short term, and too little consolidation in the long term.”

Debt Sales

Treasury 10-year note yields declined to almost four-month lows as the U.S. prepares to sell $35 billion in two-year debt tomorrow. The benchmark 10-year yield was one basis point lower at 1.69 percent at 9:32 a.m. in New York, according to Bloomberg Bond Trader prices. It touched 1.67 percent on April 17, the lowest level since Dec. 12.

Europe’s efforts to establish a “pan-European banking union would generate a large number of benefits,” Dudley said.

The European Central Bank is set to take on oversight powers next year over all euro-area banks after the legislation underpinning the supervisory system was signed off April 18 in Brussels. The EU also needs a common resolution authority and a “credible” deposit insurance framework for banking union to succeed, Dudley said.

“It would demonstrate a commitment toward greater integration that would enhance the credibility that monetary union is indeed irreversible,” Dudley said of the initiative. “It would underscore the fact that a euro is a euro and will remain a euro throughout Europe.”

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