Fed’s Dudley: Halting Tightening Now Could Imperil US Economy

In comments on Monday, New York Fed President Dudley stated that the US labour market is doing relatively well.

There were comments that the inflation rate was a little below where the Fed would like it to be, but the unemployment and inflation levels overall were pretty good places to be with confidence that there is quite a long way to go in this economic expansion.

According to Dudley, both wages and inflation levels should pick up with an increase in wages growth to 3% over the next year or two.

Dudley also commented that a flattening yield curve is not a negative sign for the US economy and is more due to international factors.

Importantly, he also stated that it was so far, so good with the US rate hike cycle. The interest rate increases had not tightened financial conditions to any significant extent and that halting the tightening cycle now could imperil the economy.

Dudley’s views are generally very close to those of Chair Yellen and the remarks overall suggest that the core FOMC members remain confident in pushing ahead with tightening plans despite some element of unease within elements of the committee.

The dollar gained fresh support following the comments with USD/JPY moving to the 111.30 area from 111.05 while US Treasuries moved into negative territory with a decline of 5 ticks on the day as 10-year yields rose to 2.17%

Tim is a contributing author to EconomicCalendar.com. He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.