Fed Dudley Says Stock Market Correction is Small Potatoes

The recent tumult in stocks has not changed New York Fed President William Dudley’s view that the economy is likely to continue to grow above its normal pace.

“So far I’d say this is small potatoes,” the central bank official told Bloomberg News.

A rise in bond yields combined with a fall in stock prices is a market adjustment to stronger global economic growth and correlating expectations that the Federal Reserve will continue to raise interest rates, he said.

Dudley spoke as the markets suffered another substantial drop, with the Dow Jones industrials down around 650 points, or more than 2.5 percent, in early afternoon trading.

“Clearly the market is adjusting to the fact that the global economy is growing quite quickly and as a consequence of that monetary authorities around the world are either starting to remove accommodation or thinking about starting to remove accommodation, and that’s a little different than the environment we were in the prior seven or eight years,” he said.

Even with the Dow nearly touching correction territory of a 10 percent decline, Dudley said his views about the Fed needing to normalize rates has not wavered. Markets widely expect the Fed to enact a quarter-point hike in March, then perhaps two more the rest of the year.

“I have more confidence in the durability of the expansion and more confidence that the Federal Reserve is going to have to continue to more monetary policy accommodation,” he said.

If he saw the stock sell-off persist and threaten to choke off business and household spending, Dudley said he might change his view. But, he added, “that’s not likely.”

via CNBC

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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