Fed's Dudley: Strong case to to keep gradually raising rates
Speaks on tax cuts and implications
- US tax cuts to get short-term boost to economy but pose serious long-term risks
- tax cuts will come at a cost, pose challenges for Fed
- says tax cuts make him considerably more cautious about longer-term economic Outlook
- US fiscal path now unsustainable, sees risk to US credit worthiness
- significant portion of tax cuts will be saved not spent
- expects above trend GDP growth, rising inflation in 2018
- raises expected 2018 GDP growth forecast to 2.5%-2.75%, mostly due to tax stimulus
- expects inflation hitting 2% target in medium-term: unemployment down below 4% this year
- small transitory inflation overshoot not a problem
His comments are a bit new from Fed officials. "Serious long term risks" catches my eye. Also although he sees a boost in growth from tax cuts, he also expects most to be saved, not spent.
Dudley is a permanent voting member of the Fed (being the NY Fed president) but will be leaving the Fed in mid-2018. His comments seem to suggest, he might be happy leaving the Fed given the challenges from the fiscal policy changes.
The USDJPY -after bottoming earlier at the the 111.03 level (target 111.00-02) - is trading up at at 111.17 currently (see early post outlining the level as a downside target today). The comments have had a limited impact, but technically, the 111.00-02 is more important on the bounce.