NY Fed President Dudley Complains Unemployment is Too Low, Rate Hikes Needed

NY Fed President William Dudley is worried about the low unemployment rate. He thinks the Fed needs to be above neutral.

New York Fed President William Dudley will retire Monday. Current San Francisco Fed chief John Williams will take over.

He departs with one more gem: Dudley Foresees Need for Fed Rate Hikes to Slow the U.S. Economy.

“The federal funds rate will probably have to climb a little bit above neutral, because the unemployment rate is already -- from most people’s vantage points -- below a sustainable level of unemployment consistent with stable inflation,” Dudley told reporters Friday. “So, I think the move will be eventually to a slightly tight monetary policy.”

“I’m sort of expecting that the peak in the federal funds rate in this cycle will be lower than in past cycles, but I have quite a bit of uncertainty about that,” Dudley said during a conference call.

The unemployment rate is too low now, so we need to hike.

Last year he said consumers should "unlock" housing equity to boost the economy.

“The previous behavior of using housing debt to finance other kinds of consumption seems to have completely disappeared,” and people are leaving the wealth generated by rising home prices “locked up” in their homes.

“A return to a reasonable pattern of home equity extraction would be a positive development for retailers, and would provide a boost to economic growth.”

By the way, the Housing ATM is Back (But it won't work any better this time).

Dudley is a real gem. He will be missed for the comedy he provides.

Mike "Mish" Shedlock

Comments (21)
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Bam_Man
Bam_Man

We are in the twilight of the Keynesian era - which has already lasted long beyond it’s actual shelf life - so the nonsensical gobbledegook that emanates from its designated, establishment mouthpieces will become ever more detached from reality. Enjoy!

Casual_Observer
Casual_Observer

This may be the dumbest Fed comment ever. If they aren't thinking of the consequences of raising rates on the bond markets including junk bonds and other "investment grade" bonds, then they have no idea what they are doing. We are so screwed when the next crisis hits that no one will know what the hell happen and how it all went so south so quickly. Anything that pulls in future spending will only result in something worse later on.

truthseeker
truthseeker

I need to make a correction here since the week long chart of the Chinese Yuan correlation to gold which I viewed is inverted yet this really doesn’t change the overall dynamic imo.

Realist
Realist

Unemployment can go a lot lower. Simply train all the unskilled unemployed to fill all those empty jobs.

Snow_Dog
Snow_Dog

Or else hire all the underemployed to do the jobs they are already trained for, even if it means actually having to pay them the going rate for their services.

Stuki
Stuki

The whole pretense that there exist some economically meaningful, measurable quantity out there called “unemployment,” is so misguided from the get-go, as to render anything derived from it nothing more than a sad joke.

Pay anyone a quadrillion a millisecond, and they’ll work a little bit more than they do now. Cut their take home to something infinitesimally above nothing, and they’ll work less. Give them a good alternative to schlepping it to work, like a home team in the World Cup soccer final, and they’ll all be “unemployed” for a few hours.

Leisure is a good, no different in any way from Ferraris. More of it beats less of it, but there’s limits how much you can afford. Priorities change over time, including how one values one good vs another. At no point does one magically cross a line in the sand from “unemployed” to “employed,” as there is simply no such line to cross. It’s all a continuum, with every single person (and non-person) having a different preference set every single day (or millisecond..).

The only meaningful thing government, including the Fed, can do to combat any economic so-called malady, is to do nothing that reduces economic efficiency. Since this, per definition, creates more resources per hour of labor input. Leaving people in a better position to trade off labor vs leisure, and leaving the amount of added output available in exchange for hiring another hand for another hour greater.

Dicking around, making up childish, inane categories like “unemployment” and (price)“inflation,” then pretending those arbitrarities somehow have a life and meaning on their own, is no more useful in (pseudo)economics than in any other field the progressives have brought similar penchant for Newspeak to bear on. It’s all nothing but made up, 100%, pure nonsense. Makework for idiots without even the insight to realize all they ever have, and ever will, spent their life on, is pure, pointless waste and folly.

Realist
Realist

Hi Stuki. Try telling someone who can’t land a job that “there is no such thing as unemployment”. Governments in developed countries have been doing something “meaningful” for a hundred years. It's called education and training. It’s why those countries “developed” in the first place. Countries with the best educated and most highly skilled populations have a distinct competitive advantage over countries that don’t. Your laissez-fare concept of the world is appealing because it requires no effort, but the reality is that mankind must put forth effort to fight the universe’s natural state of chaos. Which brings a question to mind; why do you bother to post anything at all?

Realist
Realist

Snow dog. If i had a job opening that needed to be filled, I would hire someone with the right education and skills first. If, like many businesses today, I couldn’t find that person, I would hire and train someone else. The fact that millions of jobs currently sit empty means that the business is not the problem. It is the lack of suitable workers to hire.

Steve Bull
Steve Bull

One must remember we are rationalizing animals, not rational ones. With little to no 'skin in the game', it's quite easy (and non-consequential) to make all sorts of silly comments about any and everything. That people continue to take economists at the Fed, or any other central bank, seriously is baffling, given their continual 'mistakes'. But, then again, I do check in on the weather forecast beyond the 2-4 hours that tends to be 'accurate'.

RonJ
RonJ

Wasn't the FED supposed to have been raising rates when unemployment got down to 6.5%? All they did was make excuses as to why they didn't.

Ambrose_Bierce
Ambrose_Bierce

He must assume that a higher unemployment rate will put pressure on wage inflation? I would assume that if very many people lost their jobs that government would put another bid under minimum wage. There is a study out that it takes a minimum wage worker three jobs to afford an apartment, so three of them go together and split the rent, but layoff one of them what have you got? the other two need a higher minimum wage.

Stuki
Stuki

@Realist Give the guy a few million, and watch him stop complaining about a lack of “jobs” overnight… People need/want the purchasing power to consume stuff. Not “a job.” What they complain about, is a lack of purchasing power. Nobody complains they aren’t allowed to work more hours at no added pay. While more pay for the same amount of work seem just a-ok for most everyone. Hence, obviously, what people want more of is pay. Not “a job” in and of itself.

The reason the two is often confused by those who absolutely refuse to think even a wink beyond popular fistpump slogans, is that most people do need to do something productive in return for pay. So they do need to work. But the only “policy goal” that corresponds with people’s actual revealed preferences, is to maximize the amount of pay people receive. Not whether they are classified as unemployed by the BLS or not. And maximizing their pay, requires maximizing the amount of output each worker is able to produce. Which means increasing the amount of capital available to him, as well as his skill at using the capital available. Not just being able to check of some box saying he is now arbitrarily classified as “employed” rather than “unemployed” based on meeting some made-up criteria.

Newton, Einstein, internal combustion engines and economics, were all invented prior to governments “meaningfully” interfering in the education of their kids and kin, that people have been doing since before they were even people.

The Soviet government ran an infinitely more impressive “education system” than the Hong Kong one for the duration of their existence. And had the Chess champions to show for it. And some hydrogen bombs. Even a nice stack of Nobels. But precious little else. Particularly in the way of welfare for it’s population. And you know why? Because of a lack of Laissez-Faire.

Mankind always puts “forth effort to fight the universe’s natural state of chaos.” No man can help doing so. But each man is only meaningfully able to put forth such effort to fight the chaos he experiences himself. There are no Dear Leaders putting forth effort to fight it on anyone else’s behalf. All pretending there is accomplishes, is allowing said Dear Leader to fight hos own particular chaos with resources stolen from others. Such that said others are now less able to fight the chaos they themselves experience. Cue “well educated” Soviet graduates of free (in many fields very highly regarded) state universities, vs illiterate Hong Kong textile traders.

The Invisible Hand that inevitably coordinates the “chaos fighting” undertaken by free men, OTOH, doesn’t steal. Nor impede in any other way, mankind’s (which is no more than a simple aggregate of all men’s) effort to fight chaos. Hence, the less Dear Leader, and the more Invisible Hand, the less stealing, and the more chaos fighting. For all but possibly Dear Leader himself, and his closest associates and hangers-on.

Realist
Realist

Thanks for the reply Stuki. I agree with some of what you say. For instance, I am in the fortunate position of not having to work. I have all I need financially. Yet I continue to both work and also to volunteer my time, because it gives me a sense of purpose and accomplishment. Part of what I do for charity is training unemployed people who lack the skills to get a job. These people “need” a job in order to have a better life. As technology advances at a faster pace, the job market is also changing at a faster pace. Any society that can train its workers to match the needs of its’ employers, will be a better society.

Stuki
Stuki

@Realist I do tend to agree with lots of what you say as well. Skills based training from people who have actually been there, done that, in a setting remunerated by a somewhat free market; instead of, or at least in addition to, simply formal education and degrees, does look to be one of the keys to Germany’s outperformance compared to virtually all peers.

People are extremely flexible creatures, though. Incredibly attuned to take advantage of any opportunity that presents itself, if allowed to. Which is why, in addition to skills, education, safety nets, help and care; opportunity is also something that needs to be focused on.

And opportunity for those who currently have little to nothing, is the first thing to suffer, once societies starts becoming more concerned with all manners of contrived ways to guard and ringfence the status quo of privileges and property values of the already wealthy and powerful, than with the almost monomaniacal obsession with ensuring widespread access to unfettered opportunity, that illuminated the American revolution and westward expansion, which was likely mankind's so-far finest hour, as far as freedom for the average Joe was concerned.

Ambrose_Bierce
Ambrose_Bierce

1970s were one long recession, and that is our historical doppelganger the current situation