William C. Dudley, President and Chief Executive Officer of the New York Federal Reserve, was speaking today. Unlike other critical voices of QE3 from Dall Fed President Fisher today and from Richmond Fed President Lacker over the weekend, Dudley was in effect talking up last week’s QE3 announcement.

For starters, the economy has been much weaker in the employment than the FOMC wants and they still have tools that can be used to further aid and assist economic growth. That being said, it is also too soon to discuss or ponder anything about a QE4.

Dudley’s remarks were to the Morris County Chamber of Commerce in Florham Park, New Jersey today. As a reminder, Mr. Dudley is the vice chairman of the FOMC.

He said, “First, the Committee said that if it did not see substantial improvement in the outlook for the labor market, it will continue the MBS purchase program, undertake additional asset purchases and employ its other policy tools as appropriate until it does. Second, the Committee emphasized that it expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”

Dudley also noted, “Looking ahead, in the absence of further monetary easing, I concluded that growth would remain too subdued over the next several years to make big inroads into the spare capacity that remains from the Great Recession. As a result, unemployment would remain unacceptably high, with economic risks skewed to the downside. Meanwhile, with substantial slack in labor markets and inflation expectations stable, inflation was likely to remain a bit below our 2 per cent longer-run objective.”

And on the end of Operation Twist… “As we approach year-end, the maturity extension program in which we are increasing our holdings of long-dated Treasuries will be coming to an end. I’ll be taking stock on how we are doing with respect to our employment and inflation goals and whether it will be appropriate to continue purchasing longer-dated Treasuries when that program concludes. I think that this will depend on whether we have seen a substantial improvement in the labor market outlook in the interim and any further evidence about the costs and benefits of continuing such purchases.”

FULL COMMENTS

JON C. OGG

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