Fed not yet decided on more easing, Dudley says

MELVILLE, N.Y., Mon Mar 19, 2012 – The Federal Reserve has not yet decided whether to embark on a third round of quantitative easing, or QE3, though it remains an option, an influential Fed official said on Monday.

New York Fed President William Dudley, a close ally of Chairman Ben Bernanke, painted a mixed picture of the economy, tempering recent signs the recovery is gaining speed with warnings that it could just as easily stall out.

“Nothing has been decided,” he said of QE3, in which the Fed would make large-scale asset purchases in an attempt to lower rates and give the economy another controversial shot of adrenaline.

“It all depends on how the economy evolves,” Dudley added. “It’s about costs and benefits, and if we get to a point where we think the benefits of another program of QE outweighs the costs, then we’ll certainly do so.”

Dudley, like Bernanke in recent testimony to Congress, defended the central bank’s ultra-easy policy stance but seemed to temper any talk of exactly what more it was prepared to do to help along the recovery and ratchet down the unemployment rate, which remains high 8.3 percent.

After a meeting in Washington last week, the Fed’s policy-setting committee made no policy change and gave few clues how it interpreted some recent jobs growth, coupled as it has been with worries over GDP growth and oil price-driven inflation.

Dudley said U.S. economic activity is not yet strong or sustained enough to put a dent in the economy’s “slack,” which is keeping many Americans out of work some three years after the deep recession ended.

“The incoming data on the U.S. economy has been a bit more upbeat of late, suggesting that the recovery may be finally establishing a somewhat firmer footing,” Dudley said, citing expanding GDP late last year, payrolls, sales of motor vehicles, and somewhat firmer housing starts.

“While these developments are certainly encouraging, it is far too soon to conclude that we are out of the woods,” Dudley, a policy dove with a permanent vote on the Fed’s policy-setting committee, told a gathering of the Long Island Association.