Fed’s Dudley Sees Temporary Low Inflation

• Fed’s Dudley Sees Temporary Low Inflation

The president of the Federal Reserve Bank of New York, William Dudley said factors limiting price pressures would disappear over time, giving the apex bank enough time to gradually tighten its monetary policy.

According to Dudley, inflation rate should pick up and stabilize around the Fed’s 2 percent target as a number of temporary, idiosyncratic factors fades.

“In response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually,” Dudley said in text of a speech delivered on Monday in Syracuse, New York.

Policy makers voted last week to keep monetary funds rate at 1.25 percent and gradually commence normalization of the Fed’s $4.5 trillion balance sheet in October.

The Federal Reserve concern now is if inflation rate would be enough for the central bank to raise rates for the third time this year. Consumer prices have remained below target, even with the unemployment rate at a record low and participation rate stabilized. Wage growth remains weak, hurting earnings and surge in consumer spending.

But, Dudley believes a healthy labor market and weaker U.S. dollar would eventually encourage spending, while he doesn’t think growing fixed investment would stop soon.

“The U.S. economy remains on a trajectory of slightly above-trend growth, which is gradually tightening the U.S. labor market,” he said. “Over time, this should support a rise in wage growth. The fundamentals supporting continued expansion are generally quite favorable.”

In a move to increase productivity and bolster economic growth, the U.S. parliament will vote this week on tax policy. A positive outcome would boost the stock market, U.S. dollar outlook and deepen this administration position at increasing economic growth rate to 3 percent as promised during presidential campaign.

President Donald Trump will outline his Tax agenda on Wednesday after the Fed Chair, Janet Yellen delivers her speech titled “Inflation, Uncertainty, and Monetary Policy” at the National Association for Business Economics Annual Meeting, in Cleveland on Tuesday.

The US dollar gained against the Euro to $1.1853, following Europe’s largest economy, Germany, election outcome.