NEW YORK (MNI) – The following is the second and final section of
excerpts from the remarks of New York Federal Reserve President William
Dudley prepared Monday for Fordham University’s Gabelli School of
Business:

In light of the current weak outlook, the FOMC issued a statement
after our last meeting saying that we expect to keep short-term interest
rates exceptionally low at least through mid- 2013. The committee also
said it would change the composition of the assets the Fed holds on its
balance sheet for monetary policy purposes. We are selling some of the
short-term government debt that we hold and buying longer-term debt.
This exchange should provide some additional support for growth. In
addition, we discussed the range of policy tools available to promote a
stronger economic recovery even as we keep inflation pressures in check.

Just like interest rate cuts in normal times, our monetary policy
provides support through lower interest rates that encourage
private-sector business investment and household spending. This policy
tool should not be confused with fiscal stimulus or government spending.

I believe that the actions we have taken recently will be helpful
in supporting growth and jobs. However, I do not think that monetary
policy is all-powerful. To get the strongest possible recovery we need
reinforcing action in areas such as housing and fiscal policy.

–Stabilizing the housing sector is particularly important because
housing equity is an important part of household wealth. This calls for
a comprehensive approach to housing policy, starting with an urgent
effort to remove the obstacles that make it difficult for all borrowers
to refinance at today’s low mortgage rates, but extending beyond this to
tackle other problems weighing on housing. Taken together, such efforts
could help shift people’s expectations about future house prices. If
prospective homeowners no longer fear that prices could decline further,
they will be more willing to enter the market to take advantage of
reduced prices and low financing costs, and existing homeowners will
feel more confident about spending. A vicious cycle could be replaced by
a virtuous circle, in which stabilization in house prices supports
spending, growth and jobs.

–On the fiscal side, it is important that we see progress in
Washington in addressing the long-term fiscal challenges facing the
country in a manner that is credible and supports economic recovery. Not
only is this important to reassure households and business that the U.S.
budget is on a sustainable path, but also this would be important from a
larger confidence perspective — demonstrating to our citizens and the
world that the political process can still work to make tough choices in
the national interest. In this regard, the ability of the so-called
Congressional “Super Committee” to reach agreement on a way forward is
an important opportunity that I hope is not squandered.

—

Conclusion

To sum up, over the first half of 2011, the slowing of economic
growth in the nation and the weak labor market has been a major
disappointment. Growth has picked up modestly in the second half of
2011, but not enough to bring unemployment down. While there are some
bright spots in the U.S. economy and the financial system, strong
headwinds are preventing a more vigorous recovery. Inflation, which has
risen in recent months, is poised to slow soon. The Fed is doing-and
will continue to do-everything within its power to promote jobs and
price stability.

High poverty, unemployment and delinquency rates suggest that the
Bronx faces a number of challenges. However, the continued job growth in
the Bronx and rest of the city should create more opportunities for
Bronx residents to improve their incomes and personal finances.

Going forward, the key challenge for the Bronx will be to prepare
its residents for the best jobs being created here, in the city and in
the accessible areas north of the city. The Bronx must strive to build
the human capital-that is, education and skills-of its workforce. A
region’s human capital determines a large part of its economic success.
The Bronx needs to ensure that it can attract and train workers for the
broad range of tasks that an advanced economy demands. In addition,
expanding education and skills goes a long way to broaden participation
in the economy to all residents.

Thank you for your kind attention.

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