Fed to push hard with stimulus now; can step back later this year: Dudley

Mon Sep 23, 2013 4:05pm EDT
 
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By Jonathan Spicer, Luciana Lopez and Ann Saphir

NEW YORK/SAN ANTONIO (Reuters) - The Federal Reserve must for now continue to push hard against threats to the U.S. recovery, but should still be able to reduce its support for the economy later this year, an influential central bank policymaker said on Monday.

In a strong defense of the Fed's shock decision last week to keep buying bonds unabated, New York Fed President William Dudley warned in a speech that fiscal uncertainties "loom very large" as Congress prepares to hash out a deal to avoid a government shutdown and raise the nation's debt ceiling.

At a separate New York event, Atlanta Fed President Dennis Lockhart likewise warned that America risked "losing its economic mojo" unless lawmakers worked to reverse declines in labor productivity and new job creation.

In San Antonio, the hawkish chief of the Dallas Fed, Richard Fisher, told reporters that he had pushed for the Fed to reduce its monthly purchases by $10 billion, and warned that by standing pat the Fed had hurt its credibility.

Last week, investors were stunned when the Fed decided not to reduce its asset purchases from the current $85-billion monthly pace, sparking a global stock rally. The decision prompted criticism that policymakers got cold feet despite improving employment and economic growth, and that they misled investors.

But Dudley, a close ally of Fed Chairman Ben Bernanke, highlighted drags from the sharp recent rise in longer-term interest rates, higher taxes and lower public spending adopted earlier this year, as well as growing questions over the debt limit and government funding.

"We must push against these headwinds forcefully to best achieve our objectives," Dudley, a consistent policy dove and a permanent voting member of the central bank's monetary policy committee, said at Fordham University.

Stocks and bonds surged and the U.S. dollar dropped last week after the Fed's policy decision.   Continued...

 
William C. Dudley, president and chief executive officer of the Federal Reserve Bank of New York speaks at the Council on Foreign Relations in New York, May 24, 2012. REUTERS/Andrew Burton