Fed’s Dudley sees risks to US eco­nomic out­look

The Pak Banker - - COMPANIES/BOSS -

An in­flu­en­tial Fed­eral Re­serve of­fi­cial on Tues­day said he sees down­side risks to his US eco­nomic out­look, an as­sess­ment that could flag a longer pause be­fore the Fed's next in­ter­est-rate hike than he and his col­leagues had ear­lier sig­naled. "At this mo­ment, I judge that the bal­ance of risks to my growth and in­fla­tion out­looks may be start­ing to tilt slightly to the down­side," New York Fed­eral Re­serve Pres­i­dent Wil­liam Dudley said in re­marks at a con­fer­ence in Hangzhou, China spon­sored by the Peo­ple's Bank of China and the New York Fed.

Al­though he said he still ex­pects the U.S. econ­omy to grow about 2 per­cent this year, enough to push un­em­ploy­ment down and be­gin to pull in­fla­tion up to the Fed's 2-per­cent tar­get, he added, "on bal­ance, I am some­what less con­fi­dent than I was be­fore." The Fed raised U.S. in­ter­est rates in De­cem­ber for the first time in al­most a decade, and sig­naled that it would prob­a­bly raise rates four more times this year, a grad­ual pace by his­tor­i­cal stan­dards.

The U.S. cen­tral bank in De­cem­ber raised its tar­get range for its bench­mark pol­icy rate by one quar­ter of a per­cent­age point, and cur­rently aims to keep the rate be­tween 0.25 per­cent and 0.5 per­cent. Dudley, a close ally of Fed Chair Janet Yellen and a per­ma­nent voter on U.S. mon­e­tary pol­icy, sug­gested that the sharp global eco­nomic slow­down, stock-mar­ket sell-off and oil price slide since the be­gin­ning of the year may force the Fed to tighten mon­e­tary pol­icy even more slowly.

The Fed put mar­kets on no­tice for just such a pos­si­bil­ity in Jan­uary, say­ing it needed more time to as­sess global de­vel­op­ments and their ef­fect on the U.S. econ­omy be­fore of­fer­ing an as­sess­ment of the bal­ance of risks to the out­look.

For Dudley, the jury now ap­pears to be in. With tur­bu­lence in global fi­nan­cial mar­kets re­flect­ing mixed eco­nomic sig­nals, the risks ap­pear to have in­creased, and though so far he has left his out­look largely un­changed, con­tin­ued tight­en­ing in fi­nan­cial mar­kets "could po­ten­tially lead to a more sig­nif­i­cant down­grade to my out­look." Of par­tic­u­lar con­cern, he said, were fall­ing in­fla­tion ex­pec­ta­tions, as tracked both by mar­ket pric­ing and more im­por­tantly in his view, by sur­veys of house­holds. While so far the de­clines were not dan­ger­ously large, if they fell fur­ther they could make it more dif­fi­cult for the Fed to bring in­fla­tion back up to its goal.

The Fed next meets in mid-March to con­sider mon­e­tary pol­icy, and is widely ex­pected to leave rates un­changed. In a ques­tion-and-an­swer ses­sion fol­low­ing his speech, Dudley said the De­cem­ber rate hike was jus­ti­fied. He said the rel­a­tive strength of the dol­lar was a fac­tor in the Fed's de­ci­sion-mak­ing in gen­eral, al­though the U.S. cen­tral bank did not have "an ob­jec­tive" for the green­back.

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