Uncertainty over the outlook for the U.S. economy is higher than usual, which calls for a “cautious and gradual approach” to interest-rate increases, Federal Reserve Bank of New York President William C. Dudley said.
Mr. Dudley, in remarks prepared for a speech Friday in Bridgeport, Connecticut, echoed recent comments from Fed Chair Janet Yellen, who said March 29 that the presence of downside risks to the outlook meant it was appropriate to “proceed cautiously in adjusting policy.”
“The factors behind the financial turbulence we saw earlier this year do not yet appear to be resolved fully,” Mr. Dudley said. “Although the downside risks have diminished since earlier in the year, I still judge the balance of risks to my inflation and growth outlooks to be tilted to the downside.”
The New York Fed chief said he continues to expect the U.S. economy will grow about 2% this year, which in turn should reduce the unemployment rate further, to around 4.75%.
He highlighted low inflation expectations as a “cause for concern” that presented risk to his outlook that inflation would gradually rise to the Fed's 2% target, but added that the “recent rise in inflation and in measures of inflation expectations have increased my confidence around this outlook compared to earlier in the year.”
Dudley, reinforcing other comments Yellen made, said the Fed should be cautious because it has limited ability to lower interest rates if the economic outlook deteriorates. The central bank can use communications and balance-sheet policies as monetary stimulus if warranted, he said.
