william dudley

The combination of a rapidly growing economy, and a surge in oil prices, has raised questions about the strength of the doves’ hand at the Fed. Previously in firm control, the doves had until yesterday been silent about the recent mixture of strong GDP growth and rising headline inflation. Was the case for exceptionally easy monetary policy beginning to fray at the edges? Not in the mind of New York Fed President Bill Dudley, who is among the most eloquent spokespersons for the dovish standpoint.

In an important speech, Bill Dudley confirmed that the US economy is now growing at an accelerating rate, but said that this reflected the success of Fed policy, rather than providing any case for changing it. He conceded that the structural unemployment rate may have risen to between 6 and 7 per cent, but argued that much of this increase may be temporary. And, in any event, he suggested that employment could rise by 300,000 per month for two years before the economy would run out of spare capacity. On the commodity price surge, he said that this would not be a sufficient reason for tightening monetary policy, unless it started to increase inflation expectations. Assuming this does not happen, Bill Dudley will remain an influential dove for a long time. And this is important, because his recent thinking has been very close to that of US Federal Reserve chairman Ben Bernanke himself.

There have been two significant challenges to the Fed’s dominant dovish tendency in recent weeks – the big drop in unemployment, and the rise in commodity prices. Bill Dudley considers both factors carefully, but concludes that neither is powerful enough to change his basic viewpoint on the economy.

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The impact of foreclosure documentation problems on the housing market is “still uncertain” and may cast a cloud over the sector for “the foreseeable future”, said William Dudley, president of the Federal Reserve Bank of New York.

Mr Dudley, a member of the Fed’s policy-setting Federal Open Market Committee, is a supporter of further monetary easing, saying recently “further action is likely to be warranted” by the central bank. This was interpreted as a sign that purchases of US Treasuries by the Fed – quantitative easing – would step up in November. Read more

From FT.com

By Gillian Tett Read more

Simone Baribeau

William C Dudly, president of the NY Fed, today outlined his concerns with the direction of financial regulatory reform. His three-fold concerns (in brief).

  1. There is no global consensus on regulatory reform. The problem, he says, is that “without harmonized standards, financial intermediation would inevitably move toward geographies and activities where the standards are more lax.” He recommended “a long phase-in period in the transition to ” new standards. “The focus should be more on the side of all ending up in the same place, rather than on the relative degree of difficulty in getting there.”

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Simone Baribeau

William C Dudley, president of the NY Federal Reserve, today spoke at length about the dangers of allowing a financial institution become “too-big-to-fail.”

Though he said there is “no one silver bullet” to prevent financial crisis (and, indeed, his speech highlighted the importance of effective macroprudential supervision and increasing the robustness of the financial system), he said that it was “critical that we ensure that no firm is too big to fail.”

The moral hazards with giant institutions were two-fold, he said. First, too-big-to-fail institutions would be able to get cheaper credit, since they’d effectively have an implicit government guarantee. Second, institutions would have an incentive to become large, simply so they could get the government backstop, reguardless of their financial health.

Notably, though, his solutions to the too-big-to-fail problem did not mention actually limiting firms’ size.  Read more