NY Fed’s Dudley: The US Economy Has ‘Significant Excess Slack’

William Dudley

NY Fed president Bill Dudley says Q4 2011 GDP growth was due to temporary factors and would be unlikely to continue into the first half of 2012.

In remarks released today, Dudley said last summer’s supply chain disruptions caused by the Japanese tsunami and earthquake had created a mini auto-sales bubble at the end of the year.

He also noted that a stimulus-related tax provision, called Section 179, that allowed business to deduct up to $500,000 of expenses expired at the end of 2011. “Some purchases were no doubt timed to occur before that expiration,” he said.

Finally, he argued that there is  “significant excess slack” in the economy, which manifested in a 59% employment rate would continue to dampen inflation.

He concluded his remarks on this bearish note:

“At the national level, the pace of recovery remains sluggish by historical standards and is likely to slow somewhat in early 2012. Thus, unemployment, both nationally and locally, is likely to remain unacceptably high for some time. Also, inflation is likely to be below our objective for several years. Clearly, much work remains to achieve the Fed’s dual mandate of maximum sustainable employment in the context of price stability.”