The economy is progressing, despite some issues, and the conditions may soon be met to allow the Federal Open Market Committee to begin normalization, Federal Reserve Bank of New York President and Chief Executive Officer William C. Dudley said Thursday, noting he would not predict whether rates will be increased at the FOMC December meeting.
"I think it is quite possible that the conditions the Committee has established to begin to normalize monetary policy could soon be satisfied," Dudley told the Economic Club of New York, according to prepared text released by the Fed. "In particular, I will be evaluating the incoming information to see if it confirms my expectation that growth will be sufficient to further tighten the U.S. labor market."
But, he noted, "I can't tell you today precisely what I'd favor doing in the future, because that future remains uncertain."
Dudley prefaced his remarks with a disclaimer that he would not address the December meeting other than to say his "view will depend on how incoming data, broadly defined, influences my assessment of the prospects for further improvement in the U.S. labor market and my confidence that inflation will return to the FOMC's 2 percent objective over the medium term."
The economy has "been making progress toward our goals, recognizing that a few issues still cloud the outlook," Dudley said, noting, "inflation continues to run well below our 2 percent objective."
Slow third quarter gross domestic product and manufacturing weakness "raised concerns that the U.S. economy may be losing some forward momentum," Dudley said.
Partly to blame is the dollar's strength. "Judging from historical experience, the impact of the dollar's recent strength has the potential to be protracted, so that the trade sector probably will continue to be a drag on growth in 2016. Thus, the manufacturing sector is likely to continue to lag behind the rest of economy," he noted.
Despite the negatives, Dudley said there are "many positive aspects of the economic outlook," including consumer spending, housing and business fixed investment.
In the labor markets, he suggested "some margin" of slack exists since broader measures of joblessness are higher than they should be given a 5% unemployment rate, and no signs point to "rapid labor compensation gains."
While inflation runs "substantially short" of the Fed's 2% target, and evidence suggests "inflation expectations are under downward pressure," Dudley said, "If the economy continues to grow at an above-trend pace, then I think worries about inflation remaining too low should begin to recede."
