Dudley Says More Fed Easing Is Warranted Unless Economic Outlook Changes

Federal Reserve Bank of New York President William Dudley said the outlook for U.S. job growth and inflation is “unacceptable” and that more monetary easing is probably needed to spur growth and avert deflation.

“We have tools that can provide additional stimulus at costs that do not appear to be prohibitive,” Dudley, who serves as vice chairman of the Fed’s policy-setting Open Market Committee, said today in a speech to business journalists in New York. “Further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long.”

Dudley’s remarks are one of the clearest signs that policy makers will start a second round of unconventional monetary easing as soon as the FOMC’s next meeting Nov. 2-3. While other Fed officials voiced a range of views in speeches this week, Chairman Ben S. Bernanke said yesterday that the central bank has a duty to aid the U.S. economy as the jobless rate holds near 10 percent.

Lowering long-term interest rates by restarting purchases of Treasuries or mortgage debt would have a “significant” effect on the economy by supporting the value of homes and stocks, making housing and refinancing mortgages more affordable and reducing the cost of capital for businesses, Dudley, 57, said to a Society of American Business Editors and Writers conference.

Deflation Concern

“Both the current levels of unemployment and inflation and the timeframe over which they are likely to return to levels consistent with our mandate are unacceptable,” Dudley said. “The longer this situation prevails and the U.S. economy is stuck with the current level of slack and disinflationary pressure, the greater the likelihood that a further shock could push us still further from our dual mandate objectives and closer to outright deflation.”

Treasuries declined after reports showed U.S. consumer spending rose more than forecast in August and manufacturing in China expanded at the fastest pace in four months in September.