Fed's Dudley Remains Confident Inflation Will Eventually Rise

By Michael S. Derby Features Dow Jones Newswires

New York Federal Reserve President William Dudley said Monday he still expects that a very strong employment sector will help push inflation up over time.

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But Mr. Dudley didn't have much to say directly on the interest-rate outlook, noting only that the Fed is "gradually removing monetary-policy accommodation."

Speaking at an event held by the University of California, Berkeley in New York, Mr. Dudley said that the economy was close to full employment. That situation, he said, should fuel wage gains over time that will eventually filter into broader price pressures and help push inflation back up toward the central bank's 2% inflation target.

Mr. Dudley repeated his view that low inflation with low unemployment is "not actually a bad thing," because it would enable policy makers to "probe" how much lower the jobless rate can go before inflation heats up.

"Most central bankers would say 'sign me up' " for the current situation facing the Fed, Mr. Dudley said.

The Fed official, who recently announced he would retire from the Fed effective the middle of next year, weighed in at the start of a busy week for U.S. central-bank policy makers. Mr. Dudley will be speaking several times, Fed governor Jerome Powell will testify before congress on Tuesday as part of his confirmation hearing to become Fed chairman, and departing central-bank Chairwoman Janet Yellen will speak on the economy on Wednesday.

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The officials are speaking ahead of the Fed's next interest-rate setting Federal Open Market Committee meeting, scheduled for the middle of December. Officials are widely expected to deliver their third rate rise of the year at the meeting, boosting what is now a 1% and 1.25% overnight target-rate range.

In his speech, Mr. Dudley said the Fed's policy stance had created some familial trouble for him. "My mom is 94 years old and would like to have higher interest rates," he said in a reference to the burden that low rates can put on savers and those on fixed incomes. But he said it is better for the Fed to follow a stimulative policy that helps create jobs.

The Fed is pressing forward with rate increases amid a strong job market and steady growth, although weak inflation has complicated the case for boosting the cost of short-term borrowing. Mr. Dudley, who also serves as vice chairman of the FOMC, has been a supporter of raising rates. Earlier Monday, Dallas Fed leader Robert Kaplan also offered support for a rate increase in the "near future," in part because he is worried about the economy overheating.

Mr. Dudley's comments before the event were wide-ranging. He said that when it comes to the leadership change over at the Fed, the process has been "so far, so good." He stressed that there was continuity among leaders and staff at the Fed and that most in the institution share the same outlook for policy. He called Mr. Powell, the Fed chair nominee, "a really good choice" to lead the central bank.

Mr. Dudley declined to comment on policies now under consideration in Washington. But he did caution against putting in place trade barriers and enacting dramatic immigration restrictions. He also said any effort to overhaul the tax system should target efficiency, saying "we don't really need fiscal stimulus from an economic perspective."

Speaking on the regulatory structure put in place after the financial crisis, Mr. Dudley also said a whole scale rollback would be a bad idea. But he said there is some scope for lightening the rules burden faced by smaller financial firms.

Write to Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

November 27, 2017 22:39 ET (03:39 GMT)