William Dudley on inflation, Fed tapering, dollar domination

William Dudley on inflation, Fed tapering, dollar domination


The recent surge in inflation in the United States is likely transient for now, but it could become more persistent in the years to come as more people return to work, the former president said. New York Fed. William Dudley.

“I think the fear right now is probably going to subside a bit over the next year or so, but I think in the long run are we going to see inflation… above 2%? I think the Fed will succeed in doing it, “Dudley told CNBC “Squawk Box Asia” Wednesday.

Inflation has been a major concern in recent weeks. Investors fear a faster rise in consumer prices Federal Reserve to raise interest rates sooner than expected. United States The consumer price index rose 4.2% in April from a year ago – the largest increase since September 2008.

The Fed had previously indicated that it was ready to let inflation exceed the 2% target for a while before increasing rates.

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Dudley said the latest rise in inflation was due to factors that will resolve over time, such as disruptions in supply chains and a comparison with lower numbers last year, as the economy was hit hard by the pandemic.

In addition, more people must find jobs before the United States faces a workforce constraint that will impact inflation more persistently in the years to come, he added.

Nonetheless, Dudley said he believes the Fed will discuss cutting back on asset purchases – and start cutting back on purchases – by the end of the year.

Several Fed officials have said it is time to at least start talking about easing asset purchases, a monetary policy tool called quantitative easing. QE is used by central banks to stimulate economic activity by purchasing financial assets such as long-term securities. The sale of these assets will reduce the money supply and could dampen inflation.

President of the Dallas Fed Robert kaplan told CNBC last week that potential excesses in the housing market and other signs of inflation are indications that the central bank should start to slowly decrease.

The reserve currency status of the US dollar

Overall, the US economy is recovering from the Covid-19 crisis and this adds to the attractiveness of the US dollar, said Dudley.

The greenback is the dominant reserve currency in the world, but the share of US dollar reserves held by central banks fell to 59% in the fourth quarter of 2020 – the lowest level in 25 years, according to the International Monetary Fund said in a blog post.

Billionaire investor Ray Dalio, founder of hedge fund Bridgewater Associates, told CNBC Manage Asia that the Chinese yuan will become a global reserve currency earlier than expected.

Dudley said he did not believe the status of the US dollar as a global reserve currency would be threatened in the short term.

“I think the dollar is very safe in the short term because what is the alternative? What is the other currency that could replace the dollar?” he asked rhetorically.

“And I think it’s also a question of US economic performance, I think US economic performance over the next two years is probably going to be pretty good.”

– CNBC’s Jeff Cox contributed to this report.

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