When New York Federal Reserve Bank President William C. Dudley tried on Friday to persuade a Queens audience that inflation is under control, he nearly ended up with a Bronx cheer.
Dudley tried to make his case by citing the iPad 2 as an example of how consumers are getting more bang for the buck. “Today you can buy an iPad 2 that costs the same as an iPad 1. That’s twice as powerful,” he told an SRO meeting of the Queens Chamber of Commerce in Flushing.
Unfortunately for Dudley, several audience members were more concerned about the price of groceries than the wonders of Moore’s law, a tech rule of thumb that computing power doubles every two years for the same price.
One attendee at Dudley’s speech asked the NY Fed president, “When was the last time, sir, you went grocery shopping?”
John Postin, a financial adviser from Westbury, LI, was another skeptic about inflation. “I don’t know if you go to the supermarket to buy orange juice and other things, but we see prices going up or a smaller product at the same price,” he said.
Still, Dudley held to his script — that the economy is recovering, inflation is under control and the unemployment rate should continue moving down.
“I am pleased to say that the economic outlook has improved considerably in the past six months,” Dudley told the crowd.
Dudley cited several factors contributing to the turnaround:
* Household and financial balance sheets are improving.
* Savings rates have stabilized at about 5 percent.
* Monetary and fiscal policies, such as cheap money and a cut in payroll taxes, are leading to strong growth.
* The stock market has been rising, as have US exports.
Dudley added that the recovery from the financial crisis of 2008 is under way.
But “the healing process in the aftermath of crisis takes time and there are still several areas of vulnerability and weakness,” he noted.
Dudley also assured the Chamber of Commerce that the Fed, in attempting to promote recovery, would avoid another bubble.
“We’re not going to let that happen,” he said. The Fed’s charter is to promote economic growth without causing high inflation, which he said is now below 2 percent a year. In the 1970s, Fed policies failed and inflation ran in double-digits, as did interest rates.
Inflation’s something that Dudley says could “never happen today.” Why? The Fed, since 2008, he said, has had a new weapon to stem inflation — adjusting interest rates on excess reserves.
Another questioner at the meeting, who blamed the 2008 mess on predatory lending, complained that today banks are being stingy with loans to small businesses. Again, Dudley said credit easing would take time, as would the recovery of housing.
He said that families that lost their homes in the crash of 2008 are now “likely to seek new homes as their income permits, even though many may re-enter the housing market as renters.”