New York Fed President William Dudley hit all the relevant points today in a prepared speech to the Morris Country Chamber of Commerce, giving balanced treatment to the recently announced QE3.
To hear Dudley say it, the “if’s and then’s” of current Fed policy are simple: If the economy weakens, the Fed will buy more assets and if the economy strengthens, the Fed will buy less assets. Dudley said simply: “the amount of asset purchases that we undertake will be a function of how the economy evolves.”
He further noted that a strengthening economy would have to be accompanied by substantial improvement in labor markets and that marginal declines in unemployment (or those driven by a drop in the labor-force participation rate) would not qualify as “substantial.”
The NY Fed Pres was also careful to note that the extension of the low-rate verbiage was not due to economic pessimism, but rather because the Fed does not want to remove accommodation prematurely, saying: ” “If you’re trying to get a car moving that is stuck in the mud, you don’t stop pushing the moment the wheels start turning–you keep pushing until the car is rolling and is clearly free.”