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When New York Fed’s William Dudley Speaks, People Listen

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Federal Reserve Bank of New York President and CEO William Dudley probably knew that his speech on Friday at the Society of American Business Editors and Writers Fall Conference in New York would be widely reported. After all, he spoke to journalists. What better place to amplify a message?

Of the current economic environment, with unemployment at 9.6%, Dudley said “the current situation is wholly unsatisfactory. Given the outlook that the upturn appears likely to strengthen only gradually, it will likely be several years before employment and inflation return to levels consistent with the Federal Reserve’s dual mandate,” of high employment and “price stability.” (See the Dudley video.)

Taking care to state that some of the views he expressed in the speech were his own, Dudley outlined two steps the Fed could take to help mitigate some of the current economic woes: “As I see it, there are two potentially complementary avenues. First, we could take steps to make our current highly accommodative stance of monetary policy more effective in stimulating economic activity by providing additional guidance about what we are trying to achieve today and in the future. Second, we could find ways to increase the amount of stimulus we currently provide via our balance sheet.” Some Fed watchers could interpret that to mean buying more bonds, as the Fed has done before during bouts of quantitative easing.

However, William Poole, senior economic adviser at Merk Investments, who served with Dudley when Poole was President of the St Louis Fed, says in his commentary on the Merk website that Dudley may have “crossed the line” in revealing potential Fed policy direction. He cautioned traders to be “wary” even though he says that “Bill Dudley seems to have provided clear policy guidance to the Treasury bond market.”

In short, both Dudley’s speech and Poole’s commentary are worth reading, for those who would like to have a hint at what may be bubbling up in policy at the Fed.