Inflation running below the Federal Reserve’s target argues for “patience” on interest-rate increases and may require letting the economy run “a little hot,” New York Fed President William C. Dudley said.
“Depending on where inflation is, I can certainly imagine a scenario where the unemployment rate dips a little below” what the Fed considers maximum employment, he said today at the Bloomberg Markets Most Influential Summit in New York.
“We really need the economy to run a little hot, at least for some period of time” to push inflation back up to the central bank’s 2 percent objective, he said.
The Fed last week repeated that it would keep interest rates near zero for a “considerable time” after halting its asset purchase program at the end of October.
“There are some reasons to try to be patient,” he said. “I think the first reason to be patient is you want to make sure that when you do lift off that you actually are successful, that you don’t lift off and then it turns out that the economy weakens and you have to reverse course.”
In a wide-ranging discussion, the New York Fed chief also said the central bank is on alert for asset-price bubbles and is looking for ways to improve its strategy for communicating with the public.