Federal Reserve Bank of New York President William Dudley offered a positive outlook for the U.S. economy, job market and inflation on Thursday, saying better conditions would help support the most vulnerable Americans.
“Our outlook anticipates a continued moderate growth trend, with some further strengthening in the labor market and an increase in inflation over the medium term toward our objective of 2%,” he said in opening remarks prepared for delivery at a press briefing in New York on inequality.
“Stronger labor market conditions are perhaps the best means to improve the economic well-being of most Americans, particularly those who have been struggling and are most vulnerable to economic downturns,” said Dudley, who also serves as vice chairman of the policy-setting Federal Open Market Committee.
Fed policy makers are expected to announce when they meet next month that they will begin paring down the U.S. central bank’s $4.5 trillion balance sheet, which they built up after the financial crisis in an effort to stimulate the economy by reducing long-term interest rates. They have raised their benchmark interest rate four times since December 2015, but the chances of another increase this year have fallen to around one in three following a string of government reports that showed muted wage and price pressures in recent months.
Dudley said “comparatively modest” wage growth relative to the decline in the unemployment rate, which stood at 4.3% in July, in part “likely reflects the fact that productivity growth has been sluggish compared to historical experience.”
Price increases have moderated even as joblessness has fallen below the level Fed officials see as sustainable over the longer run. The Fed’s preferred price gauge climbed by only 1.4% in the 12 months through June from a year earlier. Policy makers have repeatedly said that they view the slowdown as transitory, though they acknowledged in their July 26 post-meeting statement that price measures have “declined and are running below” their 2% target.
The New York Fed chief also called issues of economic inequality and mobility “among the most important that we face as a nation.”
“Currently, we see comparatively high levels of inequality in the labor market in terms of differences in the wages workers earn,” he said. “Monetary policy can help support economic growth, but it is much less powerful in addressing the structural factors that underpin inequality in the labor market.”
