New York Federal Reserve President William Dudley said on Monday the U.S. economy still faces serious headwinds, including spillover effects from Europe, adding the central bank will continue to do everything within its power to help.
Europe's sovereign debt crisis has weakened the outlook for global growth and with it, U.S. exports, Dudley said in a speech to Fordham University's Gabelli School of Business.
He also listed problems in the housing market as a main stumbling block for the U.S. economy, calling it a serious impediment to a stronger recovery, which this year has been plagued by quite disappointing GDP growth.
Without robust growth, the economy is more vulnerable to negative shocks, which unfortunately seem to keep coming, the influential U.S. central banker said in the Bronx. It is like riding a bicycle -- at a slow speed, the bicycle wobbles and the risk of falling rises.
Faced with the worst recession in decades, the Fed in late 2008 cut rates to near zero and has since bought $2.3 trillion in bonds to spur a recovery. Yet the rebound has been weak and is now threatened by Europe's debt crisis, casting doubt on the central bank's strategy and effectiveness but also raising some expectations for more asset purchases.
The Fed is doing -- and will continue to do -- everything within its power to promote jobs and price stability, Dudley said.
Slow U.S. economic growth has not been able to ease unemployment, which has been at 9 percent or higher the last six months. Inflation has also been higher than the Fed's preferred level of 2 percent after a period this year of lofty gas and commodities prices.
The inflation rate should fall late this year and next, barring more energy price jumps, Dudley said.
I believe that underlying fundamentals will help to subdue inflation over the next few quarters, he said.
Last month, the Fed reached deep into its tool box and announced Operation Twist. The plan replaces $400 billion of short-term securities in its portfolio with longer-term ones to lower longer-term rates, and stimulate the economy.
Dudley said the move should provide some additional support for growth.
Europe's sovereign debt crisis, meanwhile, threatens to drag the world into another recession as policymakers there wrangled this past weekend over a possible Greek default and its impact on the European banking system.
(Reporting by Jonathan Spicer, Editing by Chizu Nomiyama)