Bill Dudley CNN Interview Feb 2017 Notes

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I think the case for monetary tightening has become a lot more compelling

“I think it means what it says. It doesn’t say it’s a week, a month, a couple months. Fairly soon means in the relatively near future. I think the key thing in terms of thinking about monetary policy is — what are we basically communicating to people in the markets? We’ve basically been saying that if the economy continues on the trajectory that it’s on, slightly above-trend growth, gradually rising inflation, we’re going to continue to remove monetary policy accommodation. So let’s look at what we’ve actually gotten. It seems to me that most of the data we’ve seen over the last couple months is very much consistent with the economy continuing to grow at an above-trend pace, job gains remain pretty sturdy, inflation has actually drifted up a little bit as energy prices have increased. So we’re very much on the trajectory that we said — that we thought we’d be on and we said if we were on that trajectory we’re going to gradually remove accommodation. What else have we seen? We’ve also seen things that should make us even more confident that this is going to continue in the future. After the election we’ve seen very large increases in household and business confidence, we’ve seen very buoyant financial markets — the stock market is up, credit spreads are narrow. And we have the expectation that fiscal policy will probably move in a more stimulative direction. So, put it all together, I think the case for monetary policy tightening has become a lot more compelling.”

Risks are tilting to the upside

“Well, it’s hard to actually put it into your forecast yet because we don’t know what it is, how big it is or when it’s actually going to hit the economy. But we do know that fiscal policy is going to move in a more stimulative direction. So what that says to me is that the risks to the outlook are now starting to tilt to the upside. So while I haven’t really built it into my GDP forecast, when I think about the balance of risks — up or down in terms of economic activity — I think the fiscal side tends to push things — the risks to the upside.”

No question that the animal spirits have been unleashed

“Well, there’s no question that animal spirits have been unleashed a bit post the election. Stock market is up a lot. Household and business confidence have increased significantly. There’s a survey of small businesses that showed a very large increase in December and sustained that increase in January. So, there’s no question that sentiment has improved quite markedly post the election.”

Slow and gradual seems the right way to proceed

“I think it’s very clear you don’t want to keep monetary policy too accommodative for too long. This is something that Chair Yellen talked about in her testimony. Because if you do, then you’re going to have to hit the brakes really hard later, move up rates very sharply and that could actually cause the next recession. So slow and gradual seems to me the right way to proceed, moving monetary policy relatively early to make sure the economy doesn’t overheat and that can actually allow you to sustain the economic expansion.”