markets

Dudley Says Too Early to Declare Victory on Fed Inflation Goal

  • New York Fed president not declaring total victory on target
  • Dudley concerned about trade wars, fiscal policy long term

Fed's Dudley Sees 'Pretty Good' Economic Outlook Ahead

Federal Reserve Bank of New York President William Dudley said he is optimistic about U.S. growth, while adding it’s too early to judge that the economy had overcome persistently low inflation.

Dudley in New York, on May 4.

Photographer: Gaia Squarci/Bloomberg

“I wouldn’t quite declare victory yet” on consistently achieving the Fed’s 2 percent inflation target, Dudley said Friday in New York during an interview with Bloomberg Editor-in-Chief Emeritus Matthew Winkler. “The inflation data goes up and down month to month, but we have made some progress and I am certainly happy where we are today.”

Dudley, 65, steps down from the helm of the New York Fed next month and will be replaced by John Williams, who currently leads the central bank’s San Francisco branch.

The Fed’s preferred gauge of inflation, the personal consumption expenditures price index, reached 2 percent in March on a 12-month basis after staying below that level for most of the last six years. The core measure excluding food and energy prices rose 1.9 percent.

Gradual Pace

U.S. central bankers left interest rates on hold at their meeting this week and gave no signal they would step up a gradual pace of monetary policy tightening. They have penciled in three or four rate hikes this year, including an increase they delivered in March. The statement announcing their policy decision included two references to their “symmetric” inflation target, which was taken as a sign they were not alarmed by rising price pressures.

“I’ve said it many times: Being a little above 2 percent after being below 2 percent for many, many years is not a problem,” he said, when asked about the emphasis on “symmetric” in the Fed’s statement.

Easy Fed policy is aimed at supporting firmer prices. That’s resulted in steady economic growth and a robust labor market. U.S. unemployment fell to 3.9 percent in April, the lowest since December 2000, Labor Department data earlier on Friday showed.

Dudley said the outlook for the expansion over the next couple of years is “pretty good.”

‘Good Shape’

“I would be surprised if the expansion were to end in the next year or two,” said Dudley, adding that businesses and households are in “good shape” financially.

“There are some clouds that I see over the longer term,” Dudley said. “Are we going to continue with an open trade system or are we going to raise trade barriers and get into a trade war?” That would raise risks to expansion, he said.

Fiscal stability is also a concern as debt-to-GDP ratios climb as a result of tax reform, said the former Goldman Sachs chief economist, who took the helm of the New York Fed in January 2009, amid the nation’s biggest financial crisis since the Great Depression.

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