The balance of risks in the economy are still “tilted toward weakness in growth and employment” rather than higher inflation, so it remains “premature” to discuss when accommodation in the monetary policy will end, Federal Reserve Bank of New York president and chief executive officer William C. Dudley said yesterday.
The economic contraction “appears to be waning” and moderate growth is expected for the second half of the year, Dudley told the Association for a Better New York, according to prepared text of his remarks released by the Fed. “Contrary to what is sometimes argued, it is not the case that our expanded balance sheet will inevitably prove inflationary,” he said.
There is a danger that “if people believe — correctly or incorrectly — that the Federal Reserve could have a problem managing a smooth exit from its accommodative policy stance, this belief alone could have the adverse effect of causing inflation expectations to become less well-anchored and risk premia on long-dated debt securities and loans to rise,” Dudley said. “These effects could conceivably make it more difficult to generate a sustainable economic recovery.”
