Despite anemic growth so far this year, the risk of a double-dip recession is quite low, a top Federal Reserve policymaker said on Thursday.
The risk of a recession is somewhat higher than it was six months ago. That said, I think the risk of a recession is still quite low, William Dudley, the president of the Federal Reserve Bank of New York, told New Jersey business leaders.
Dudley said that only some of the restraints on growth, such as high oil prices and Japan's earthquake in the first half of the year, can be considered temporary.
The risks have risen a little bit, but I think we very much still expect the economy to recover. We expect ... growth to be significantly firmer than it was during the first half of the year, he said. But obviously there is some concern.
The central bank's policy-setting Federal Open Market Committee (FOMC) took the unprecedented step last week of promising to keep interest rates near zero for a set period of time - at least until mid-2013. The Fed also said it was weighing other options to help strengthen a weak recovery.
Dudley said that market interest rates fell after the announcement, which should help provide some additional support for economic activity and jobs. The president of the New York Fed has a permanent voting position on the FOMC and plays a prominent role within the U.S. central bank.
Speaking to the Newark Regional Business Partnership, Dudley said the Fed is always scrutinizing banks and that it treats U.S. and European banks exactly the same.
Dudley was responding to a report in the Wall Street Journal that U.S. regulators are taking a closer look at the U.S. units of Europe's biggest banks out of concern that a euro-zone debt crisis could spill into the U.S. banking system.
We're always scrutinizing European banks, U.S. banks -- foreign banks, U.S. banks -- in terms of how they're doing, in terms of capital liquidity, credit quality, Dudley said. So this is standard operating procedure, this is something that we do as a matter of course.
And it's really important to stress that we're not focusing on foreign banks any more than we're focusing on U.S. banks. We treat foreign banks and U.S. banks exactly the same, Dudley said.
Dudley was visiting New Jersey to discuss regional economic developments. The state faces challenges in high debt and delinquency levels and a 9.5 percent unemployment rate, he said, but job growth in New York City should provide opportunities.
(Reporting by Edith Honan in Newark and Steven C. Johnson; Editing by Kenneth Barry)