Dudley said he needs to see “evidence that the labor market has shown improvement” and “information about the economy’s forward momentum that makes me confident that labor market improvement will continue in the future” before supporting a cut in the pace of bond buying.
“So far, I think we have made progress with respect to these metrics, but have not yet achieved success,” Dudley said. While “the economy continues to grow and payrolls are rising,” there “is little evidence of a pickup in the economy’s forward momentum.”
Joblessness fell to 7.3 percent in August from 8.1 percent in August of last year, the latest reading before the Fed started its bond purchases the following month.
The decline in unemployment “overstates the degree of improvement,” he said. Other measures, such as hiring and job openings point to a “much more modest improvement.”
The Fed’s preferred measure of inflation, the personal consumption expenditures index, showed prices rising 1.4 percent in the 12 months ended in July. The Fed has a 2 percent inflation target.
The economy is “still stuck” growing close to the 2.2 percent rate “that has prevailed since the beginning of the expansion,” Dudley said. He predicted “a bit faster” growth next year if fiscal restraint lessens and financial conditions don’t tighten further.
St. Louis Fed President James Bullard, a voter on policy this year who has backed record stimulus, said on Sept. 20 the central bank may make a small trim to its asset purchases next month after its “very close call” at last week’s meeting.
“That was a borderline decision” after “weaker data came in,” Bullard said Sept. 20 in a Bloomberg Television interview. “The committee came down on the side of, ‘Let’s wait.’”
The New York Fed said last week it will begin testing an overnight fixed-rate reverse repurchase facility as an additional tool to aid policy makers when they eventually seek to raise interest rates and tighten policy.
“The goal of this new facility is to improve our control over overnight interest rates to aid us in the implementation of monetary policy,” Dudley said today.