William C. Dudley, President and Chief Executive Officer, Federal Reserve Bank of New York – Remarks at the Fordham Corporate Law Center Lecture, New York
“My assessment of where things stand today is mixed. On the positive side, the financial markets are performing better and the economy is now recovering. In fact, the improvement in financial conditions has caused usage of the Feds special liquidity facilities to fall considerably. Consistent with their design, these facilities have become relatively less attractive as market conditions have improved. Also, the Federal Reserve has begun to taper its rate of asset purchases. The Treasury purchase program will end this month and the agency MBS purchase program by the end of the first quarter of 2010. On the negative side, the unemployment rate is much too high and it seems likely that the recovery will be less robust than desired. This means that the economy has significant excess slack and implies that we face meaningful downside risks to inflation over the next year or two. Also, there are those who express anxiety about whether the Fed has the tools and the will to raise the federal funds rate when the time is appropriate. I want to assure you that the Fed has the tools to tighten monetary policy regardless the size of its balance sheet. Moreover, we have the will to do so in order to keep inflation in check.”
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