Fed’s Dudley Says CB Has Less Policy Room to Respond in Case of Recession

The Federal Reserve would probably not be able to cut interest rates as aggressively as the last time around if it were faced with a U.S. recession in the next few years, New York Fed President William Dudley said on Monday.

Beginning in 2007, the U.S. central bank slashed rates by 5.25 percent as the financial crisis took hold. With rates having since remained near zero, Dudley said the Fed now has less policy room to respond and thus may be cautious about raising rates.

“If another recession were to happen in the next few years, it is likely that the FOMC would be unable to respond with a cut of such magnitude,” Dudley, speaking at a private conference at the New York Fed, said of the policy-making Federal Open Market Committee.

“A risk management approach to monetary policy would suggest that the more concerned one is with the effectiveness of these policies at the zero lower bound, the more cautious one would be in the process of removing accommodation,” he added in prepared remarks.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza