June 27, 2013
After Fed Chairman Ben Bernanke spooked the hell out of markets, sparking a global downturn in global risk assets speaking of possible QE tapering this year, one of his closest allies in the FOMC, New York Fed chief Bill Dudley, came to his support. On Thursday, the former Goldman Sachs partner told reporters the Fed generally overshoots its economic projections, indicating that if the outlook isn’t looking all that good, asset purchases could not only continue for longer, but there is also room for them to be ramped up. Dudley also called markets “out of sync” for their outsized reaction to the Chairman’s comments, and noted deflation remains a risk.
Dudley tried to sound as bullish for markets as he could on Thursday, indicating more QE could easily be in the cards. “If labor market conditions and the economy’s growth momentum were to be less favorable than in the FOMC’s outlook—and this is what has happened in recent years—I would expect that the asset purchases would continue at a higher pace for longer,” he said, helping U.S. stocks rise in early trading.
One of the most powerful FOMC participants, Dudley was pretty honest to reporters, acknowledging the Fed’s bad record in predicting future economic conditions. Bernanke’s acolyte also warned of the risk of deflation, as personal consumption expenditures (the Fed’s favored measure of inflation) “[have] slowed sharply over the past year and is now running below the FOMC’s expressed goal of 2 percent.”