Federal Reserve policy is "appropriately quite accommodative" given the low level of inflation, which poses little threat to a U.S. economic expansion that will only grow older unless there is an outside shock, an influential Fed official said on Friday.
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New York Fed President William Dudley, who did not directly address recent market turmoil in prepared remarks, noted that the current U.S. expansion is nearly seven years old and the third longest in the post World War Two period.
But its sheer age does not mean that the risk of recession is "edging higher," he said. "Since the possibility is low that a significant inflation risk would emerge over the near term, this means that the main danger facing the current expansion is the risk of large, adverse shocks."
Many investors believe that shock has already arrived as stocks and oil markets have plunged since the beginning of the year on fears of a global economic slowdown that could knock the U.S. economy into recession.
The Fed meanwhile raised rates from near zero in December and may well continue tightening policy gradually if U.S. economic data remains stable, such as a solid rebound last month in retail sales.
Dudley, a close ally of Fed Chair Janet Yellen and a permanent voter on U.S. monetary policy, said key areas of the world's largest economy are in good shape including U.S. housing, while the banking sector is now better capitalized.
"Given that the labor market still appears to have some excess slack and inflation is below the Federal Reserve's objective, monetary policy is appropriately still quite accommodative despite the advancing age of the expansion," he said.
Dudley spoke with reporters as the New York Fed released its household debt report, which showed total indebtedness was $12.12 trillion at the end of the fourth quarter. That was up $51 billion from the previous quarter, and up $288 billion from a year earlier.
Some 5.4 percent of that outstanding debt was delinquent, the lowest rate since mid 2007, according to the report.
(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)