NY Fed Chief Is A Little Less Worried About 'Japanese-Style Deflation'

William Dudley

Earlier today, New York Fed Chairman Bill Dudley told CNBC that he did not feel that another round of quantitative easing would be necessary, on the recent strength in the U.S. economy.

My view is that, if we continue to see improvement in the economy, in terms of using up the slack in available resources, then I think it’s hard to argue that we absolutely must do something more in terms of the monetary policy front.

What’s changed for me [from last year] is that I’m a little bit more confident that the economy’s going to keep growing. I’m a little bit less worried about a Japanese-style deflation outcome. And that was really the reason that, for me personally, motivated the need for further monetary policy action.

In a speech in New York this afternoon, Dudley points to a condition in which easing could be necessary, such as the economy slowing to a pace that he does not expect.

If the economy were to slow so that we were no longer making material progress toward full employment, the downside risks to growth were to increase sharply, or if deflation risks were to climb materially, then the benefits of further accommodation would increase in my estimation and this could tilt the balance toward additional easing.

So, Dudley has confidence that the economy will grow and that easing will not be necessary, but he does see the potential for action being taken if markets get worse over the coming months.

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