New York Fed President: Don't Believe Your Textbooks, We've Got Everything Under Control

New York Fed President William Dudley spoke to CNBC this morning about the Fed’s exit plan for monetary stimulus.

  • 0:40 We have the ability to exit smoothly because we have the ability to pay interest on excess reserves. We have the ability to drain excess reserves from the system. Everyone on the FOMC is completely committed to keeping inflation low over the long term.
  • 1:15 By easing financial market conditions, housing is more affordable, businesses can invest for less, and the higher stock market increases household wealth. If the economy can grow a little bit faster, it gives you a better prospect for being in a virtuous circle. A little more demand can lead to a little more growth. We’re trying to avoid the Japan scenario.
  • 2:00 This is going to have a modest effect, it is not a panacea.
  • 2:40 We can have an enlarged balance sheet and not have a long-term inflation problem. This is because we can pay interest on excess reserves, which can moderate credit demand. We did not have this tool before 2008. So if you’re reading the old textbooks about money and banking, you would be very concerned.


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