Dudley: Policy Must Remain Accommodative

Despite possible costs and risks, monetary policy needs to remain very accommodative, as restrictive fiscal policy holds back the recovery, Federal Reserve Bank of New York President and Chief Executive Officer William C. Dudley said Monday.

"The FOMC is committed to the dual objectives of maximum sustainable employment in the context of price stability. Currently we are falling well short of our employment objective and the restrictive stance of federal fiscal policy is a factor. On inflation, we are also falling short, but by a considerably smaller margin," he told the Economic Club of New York, according to prepared text released by the Fed. "As a consequence, we need to keep monetary policy very accommodative."

He continued, "I do not claim that there are no costs or risks associated with our unconventional monetary policy regime. But I see greater cost and risk in moving prematurely to a policy setting that might not prove sufficiently accommodative to ensure a sustainable, strengthening recovery. I remain confident that the benefits of a stronger and earlier economic recovery will trump the costs associated with our unconventional monetary policy measures."

While economic fundamentals "are improving and monetary policy is gaining additional traction," it may not translate into "stronger growth because of the recent increase in fiscal restraint," Dudley said. He called growth "lackluster and disappointing."

Because of this, he said he sees slow improvement in the labor markets and "muted" inflation, making it "appropriate for monetary policy to remain very accommodative."

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