World Economy

US Economy May Be Slowing

US Economy May Be SlowingUS Economy May Be Slowing

A closely followed Fed official said Thursday he would favor a rate hike this year if the economy performs in line with forecasts for growth, employment and inflation.

However, William Dudley said recent data suggest the economy is slowing. Specifically, he said that inventories, dollar appreciation and sluggish global growth are holding the U.S. economy back, CNBC reported.

He also said the central bank should favor a flexible approach to monetary policy.

In remarks at the Brookings Institution, Dudley said strict monetary policy rules would have slowed the Fed’s response to the financial crisis. But the Federal Reserve Bank of New York president added that he does not support “total discretion” in monetary policy.

He spoke three days after release of a paper by the San Francisco Federal Reserve that questioned the efficacy of ultralow interest rates.

For the Fed to effectively guide the economy, he said, “households and businesses need to be able to anticipate how the Federal Reserve is likely to respond to evolving conditions.”

“Prescriptive rules will wind up being behind the curve,” said Dudley.

He said the Fed must be clear about its plans for interest rate policy but should not be slave to mathematical formulas.

Speaking alongside a top proponent of the idea that central banks should follow clear rules, Dudley said such rules were useful but they oversimplified how the economy really works.

On the issues of inflation, Dudley said he is confident that falling unemployment will eventually lead to rising prices.

“I see more pressure on resources,” he said. “I see a linkage between pressure on labor market resources and my confidence in inflation.”