–NY Fed President: Recession Risk Up, But Still ‘Quite Low’

By Claudia Hirsch

NEWARK, New Jersey (MNI) – New York Federal Reserve Bank President
William Dudley Thursday said the U.S. economy’s chances of a second
foray into recession have recently edged higher, though they remain
“quite low,” and that the central bank has an array of monetary policy
measures left to fight another downturn.

“The risk of recession is somewhat higher than it was six months
ago,” said Dudley, answering questions following a business roundtable
sponsored by the New Jersey Performing Arts Center, the Newark Regional
Business Partnership and PNC Bank. But he added that the chances of a
double dip are “still quite low.”

Dudley, who serves on the Fed’s policymaking Open Market Committee
and so holds a permanent vote on the panel, said the central bank has
untapped options for preventing another steep slide.

“We have plenty of ammunition left,” he said, but stopped short of
listing those possible resources, which could include a third round of
non-traditional quantitative easing.

Dudley described U.S. growth in the first half of 2011 as “anemic”
but said recent retail sales and industrial production data are
promising.

“Strong” arguments against another recession, he said, include
improved financial market conditions compared to a year ago, as well as
an already-depressed housing sector. Meanwhile, he said that one
economic “headwind” is financial “retrenchment,” from private debt
reduction to savings-rate increases, which though well underway is not
yet complete.

In his earlier prepared remarks, Dudley said the U.S. economy
should see stronger growth in the second half of the year, as
“temporary” factors, like inflationary pressures and supply-chain
disruptions, earlier in the year have now “abated.” But he said that
more-lasting conditions have prompted him to downgrade his expectations
for the recovery’s speed.

Dudley also said in his Thursday speech that lower market interest
rates, evidenced in the days since the Fed’s announcement that it would
likely keep rates “exceptionally low” for the next two years, “should
help provide some additional support for economic activity and jobs.”

But he noted that “conditions remain unsettled and the equity
market in particular has been quite volatile recently.”

Dudley said the FOMC, at its Aug. 9 meeting, “discussed the range
of policy tools available to promote a stronger economic recovery in a
context of price stability.” The FOMC offered no further insight on
whether it might launch a third round of quantitative easing, and Dudley
has also declined to elucidate in any of his remarks since Aug. 9.

He said Thursday that the panel’s statement “presents a sober
assessment” of the economy. He noted that 2011 growth has disappointed,
the promising jobs growth earlier in the year has “deteriorated” in the
last few months and unemployment has “edged up.”

Dudley did say, however, that the FOMC anticipates inflation to
“settle over the coming quarters at levels at or below those consistent
with our mandate to promote full employment and price stability.”

His prepared remarks Thursday on the U.S. macro economy and
monetary policy largely repeated those he made at a press briefing on
the regional economy on Friday, Aug. 12.

** Market News International New York Newsroom: 212-669-6430 **

[TOPICS: MT$$$$,M$U$$$,MMUFE$,MGU$$$,MFU$$$]