–US Q4 PCE ‘More Indicative’ of Future Than Mid-2011 ‘Bubble’
–Sees ‘Very Gradual Decline’ in Unemployment in 2012
–Sees Near-Term Job Growth ‘Not That Different’ From Recent Pace

By Claudia Hirsch

NEW YORK (MNI) – New York Federal Reserve Bank President William
Dudley said Friday U.S. inflation pressures are likely to stay subdued,
given global economic conditions and the latest domestic indications.

Dudley, answering reporters’ questions following a briefing on the
regional economy and education, said Friday morning’s read on
fourth-quarter GDP and inflation is “going to be more indicative” of the
near future “than the bubble of inflation that we saw around the middle
of the year.”

He described the advance GDP report’s PCE deflator, an inflation
measure that tracks changes in personal consumption, as “very benign, a
very low reading for inflation,” and “significantly below the 2% target”
the Fed officially expressed for the first time just this week.

“What we’ve seen in recent months is significant deceleration in
inflation pressures,” Dudley said. “Commodity price pressures have
abated,” as have supply issues in the aftermath of Japan’s earthquake
and tsunami last March.

Given the expected global slowdown this year “and significant slack
in U.S. growth,” he said, inflation should “remain quiescent.”

On unemployment, the New York Fed chief said he expects a “still
quite high” jobless rate by year-end, despite what he foresees as a
“gradual decline in the unemployment rate over the next year or two.”

Near-term job creation is likely to be “not that different” from
its recent pace, and “stronger than we maybe saw a year or two ago,” he
said.

Dudley reiterated that U.S. unemployment, at 8.5%, is still
“unacceptably high.”

He dismissed the notion the Fed’s announcement this week that it
will keep short-term interest rates near zero through 2014 constituted a
sign of panic among monetary policy makers.

“I don’t sense any panic whatsoever,” he said, rather the Federal
Open Market Committee extended its low-interest-rate period forecast
from its previous mid-2013 endpoint to late 2014, a move that reflected
the unemployment, inflation and broader economic outlook.

“The point is not to keep these interest rates indefinitely,”
Dudley said. “The point is to generate (growth) … so we can normalize
interest rates in the future.”

He also said it is likely that meaningful deficit reduction and
fiscal reform will have to wait till after the November presidential
election.

** Market News International New York Bureau, phone 212-669-6430 **

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