By Sheila Mullan

NEW YORK (MNI) – New York Federal Reserve Bank President William
Dudley Friday said that it is important to watch a broad variety of
inflation indications, noting some have “drifted upward” in the first
half of 2011 but have come down in recent weeks.

“We can allow some volatility … month to month but we want to
keep inflation on an even keel,” said Dudley, departing from the text of
his speech to the Brooklyn Chamber of Commerce. He addressed about 90
attendees in a Beaux Art former courtroom in the Brooklyn Borough Hall.

He raised similar points about improved inflation expectations in
an audience question-and-answer session, specifically in an answer to a
questioner who felt that the gold demand and gains (barring Friday’s
slide) showed investors feared inflation.

“Inflation has drifted up earlier in the year, but has come down in
recent weeks,” he said, a development “likely” due to commodity price
decreases.

One cannot just single out gold demand as an inflation indicator,
but must favor the wide variety of inflation expectations to get a truer
reading, Dudley said, noting that inflation expectations now are
“generally stable.”

He added that “we certainly do note gold prices, but we need
to look at it generally” thus incorporating broader inflation
indications too such as “financial market indicators” and professional
economists’ surveys.

“What that is telling you is that inflation expectations, after
drifting up earlier this year, have reversed course, probably reflecting
the decline in commodity prices,” he said.

He sympathized with one questioner who asked about tight loan
conditions for smaller businesses and noted that such businesses are
funded by either family, credit cards or home equity loans. Small
business loans are “gradually getting better,” he said.

“Credit card conditions have been tightened,” he added. “We want to
sure the needle does not swing too far” in terms of overly strict
lending conditions and noted that “prudent” loans should still be made.

Dudley agreed with one questioner’s concerns on employment and
noted that it is particularly important to look at training for the
long-term unemployed to address any potential skill mismatches, where
those searching for jobs do not have the skills that hiring managers
need.

Dudley also noted in a departure from his speech text that the
unemployment rate had “ticked up in April and May” but is still down
compared to November 2011 levels.

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