New York Fed President: We Have No Magic Wand

William Dudley

New York Fed President William Dudley cautioned those who expect miracles from the Fed last night in a speech made at Cornell.

Dudley said, in the speech:

The Fed cannot wave a magic wand and make the problems remaining from the preceding period of excess vanish immediately. But we can provide essential support for the needed adjustments. Even with our best efforts, the road to full recovery here in Upstate New York and across the nation is likely to be long and bumpy.

Dudley is apparently trying to limit expectations for what the Fed’s quantitative easing program can achieve. He’s pointed out that the fiscal stimulus of 2009 is now running out and that we’re still seeing many of the problems it intended to fix persist.

Dudley said, in the speech:

The slow recovery of consumer spending and housing in the face of very substantial monetary and fiscal stimulus reflects the painful unwinding of the dynamics at work during the expansion that preceded it.

There seems to be a strong understand from most, if not all Fed members, that QE isn’t going to solve everything. But with a lack of political will for a second round of fiscal stimulus, it is the only government measure to stimulate growth around, and so markets continue to be enthralled.

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