“I remain confident that the benefits of a stronger and earlier economic recovery will trump the costs associated with our unconventional monetary policy measures,” Dudley said in that speech.
Dudley said today that he expects the economy to grow 2% to 2.5% this year and the unemployment rate to “decline only modestly through the rest of the year.”
Improvements in housing and consumer and business spending are being overshadowed by a “fiscal drag” of government spending cuts and tax increases, he said. A decline in retail sales in March indicated that “the tax increases that occurred at the start of the year may be beginning to have a material effect.”
“In the near term, there is considerable uncertainty about the outlook, particularly because the multiplier effects from fiscal drag” and budget cuts in Washington are still unclear, he said. “This uncertainty should gradually decline -- for better or for worse -- over the coming months.”
Dudley said “underlying measures of inflation are subdued” and expectations for future price increases “well anchored.”
“The risk that inflation could significantly exceed our 2% objective is quite low over the next few years, even if the economy were to strengthen considerably.”
Answering audience questions after his speech, Dudley said the eventual return to more normal monetary policy will have to be done in a “well-considered way.”
Ending asset purchases will just be “the first part of a very long process” and it will be “on us to communicate clearly so people don’t overreact to whenever that first move comes,” he said.
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