Fed's Dudley: Lower Infl Allows FOMC To Be Patient - PRESS

--Will Mark Down 3Q Growth 'A Touch' Due to Storms; Should Boost Economy By

Early-2018

--Next 3-6 Months of Data Could Answer Whether Infl Softness Is Transitory

     WASHINGTON (MNI) - It is too soon to judge the timing of the next interest

rate increase, but below-target inflation allows the Federal Reserve to be "a

little more patient," New York Fed President William Dudley said Friday. 

     He added that the massive hurricane Harvey, which wreaked havoc along the

Gulf Coast, and now Irma, which is set to hit Florida this weekend, will make it

very hard to read the economic data over the next few months but should boost

growth as rebuilding commences. 

     "I think it's too soon to judge exactly the timing of when the next rate

hike might occur. But I think the path is still clear that short-term rates are

going to move gradually higher over time," Dudley said in an interview on CNBC. 

     "On one hand, the economy is growing above trend. That implies that we need

to continue to remove accommodation. On the other hand, inflation is below our

target, farther below our target than we anticipated, and we also have very easy

financial conditions."

     That inflation is below the Fed's 2% target also allows policymakers to be

patient, he said. 

     "If inflation was above our 2% objective, I'm sure we'd be frustrated by

the fact that we're trying to remove monetary policy accommodation and financial

conditions are becoming easier. But with inflation below our 2% objective, I

think it allows us to be a little more patient," Dudley said. 

     It's possible that structural changes in how firms compete with each other

is putting downward pressure on inflation, he said. "If that's the case, that

would mean that we could actually allow the economy to run at a lower

unemployment rate, and that would be a good thing." 

     The next three to six months of data should help answer the question of

whether the recent softness is transitory or more persistent, Dudley said. 

     While the FOMC waits and sees how the economic trajectory unfolds, the Fed

is planning to begin running down its $4.5 trillion balance sheet "relatively

soon," Dudley said. "I don't see any reason not to do that." 

     Dudley said he's currently reviewing his projections ahead of the Federal

Open Market Committee meeting Sept. 19-20 and will probably mark down his

forecast for third quarter growth "a touch" due to the storms, though by the end

of the year and early next year, rebuilding should increase economic activity. 

     He said he's confident that the economic expansion will continue at a pace

slightly above its 2% percent post-crisis trend, thanks to buoyant financial

conditions, a weaker dollar that improves U.S. trade competitiveness as well as

an improving global outlook overall.

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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