Fed's Dudley 'hopeful' on recovery; Plosser calls for capping QE

Mon Nov 18, 2013 4:19pm EST
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By Jonathan Spicer and Dan Kelley

NEW YORK (Reuters) - Top Federal Reserve officials from opposite sides of the policy spectrum pointed to improvement in the U.S. economy on Monday, adding more weight to the notion that the central bank is getting close to reducing the pace of its monthly asset purchases.

William Dudley, president of the Federal Reserve Bank of New York and one of the staunchest supporters of the Fed's easy-money policies, cited labor market improvements and stronger-than-expected growth in the third quarter as signs of optimism for the U.S. economic recovery.

"I have to admit that I am getting more hopeful," Dudley, a permanent voter on the Fed's policy-setting committee, told students and professors at Queens College in New York.

"Not only do we have some better data in hand, but also the fiscal drag, which has been holding the economy back, is likely to abate considerably over the next few years at the same time the fundamental underpinnings of the economy are improving."

The Fed has held interest rates near zero since 2008 and has been buying $85 billion in Treasury and mortgage bonds each month for more than a year to boost investment, hiring and growth.

In separate remarks, Philadelphia Fed President Charles Plosser, an inflation hawk and critic of Fed stimulus spending, said the central bank should set a fixed dollar amount on its bond-buying program and end the purchases when that amount is reached.

Plosser also pointed to improving economic conditions, including better-than-expected hiring, and said the Fed missed an opportunity to begin scaling back purchases in September.

"We cannot continue to play this bond-buying game by ear and risk the Fed's credibility while creating lingering uncertainty about the course of monetary policy," he said in a speech before the Risk Management Association in Philadelphia.   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