William C Dudley: Opening remarks at the Transatlantic Economy -
Convergence or Divergence Conference
Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal
Reserve Bank of New York, at the Transatlantic Economy: Convergence or Divergence
Conference, Federal Reserve Bank of New York, New York City, 18 April 2016.
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It is my pleasure to welcome you to today's conference. Over the past decade, the New York
Fed has been working together with the European Commission and the Centre for Economic
Policy Research in sponsoring a number of conferences on interdependencies and policy
challenges on both sides of the Atlantic Ocean. Today, as in the past, we have a great
program with many distinguished speakers from academia, and the private and public
sectors. In particular, I would highlight the keynote speech following lunch by Pierre
Moscovici, European Commissioner for Economic and Financial Affairs, Taxation and
Customs.
As the two largest economies in the world, the United States and the European Union have a
shared stake in the vitality of the global economy. Without growth in both our regions, the
global economy will not prosper and we will not be able to provide the conditions to enable
our citizens to fulfill their aspirations. Both the United States and Europe suffered large social
and economic costs from the financial crisis and the deep recession that followed. We
continue to take steps to minimize the risks that we will ever find ourselves in that situation
again. In many respects, the United States and Europe face similar challenges and have
similar goals.
Today I want to focus on some of the challenges.
On the regulatory side, there is considerable good news. In particular, substantial progress
has been made in strengthening the global banking system. Capital and liquidity standards
for internationally active banks have been raised significantly. This should reduce the risk of
failure for these banks. Also, the financial system is being made more resilient and robust.
For example, the global set of principles for financial market infrastructures has been
updated and strengthened.
Moreover, some steps have been taken to better deal with the failure of systemically
important financial firms on a cross-border basis. Key attributes for resolution regimes have
been promulgated by the Financial Stability Board. Efforts are underway to improve how we
can work together in a coordinated way on a global basis.
But more needs to be done. The impediments to an orderly cross-border resolution still need
to be fully identified and dismantled. This is necessary to solve the so-called "too big to fail"
problem. Also, cross-border regulatory cooperation needs to be further enhanced. This
includes greater exchange of confidential supervisory information so that national regulators
can be fully informed about the conditions of the banks that operate within their borders. It
also requires efforts to ensure a level playing field across jurisdictions so that the focus is on
promoting safety and soundness rather than on trying to protect, favor, or shield national
champions.
On the macroeconomic side, the news for the United States is mostly favorable. Labor
market conditions have significantly improved over the past few years and unemployment is
now around 5 percent. The household sector is much less leveraged, the housing sector is
recovering, the banking system is much healthier, and the corporate sector is highly
profitable, even as business fixed investment spending remains quite weak. Although
inflation has fallen short of our objective, I am confident that inflation will return to our
2 percent objective over the next few years as the labor market tightens further and the
transitory factors that have held inflation down dissipate. After years at the effective lower
bound for short-term interest rates, economic conditions have finally warranted the start of
U.S. monetary policy normalization. But these monetary policy adjustments are likely to be
gradual and cautious, as we continue to face significant uncertainties and the headwinds to
growth from the financial crisis have not fully abated.
For Europe, the economic outlook has started to improve. The European Union is
experiencing a cyclical recovery and the unemployment rate has been steadily declining over
the past two years. The end of fiscal tightening appears to be a key factor in this recovery.
Risks of low inflation, however, remain a concern for the European Central Bank and have
motivated their aggressive use of unconventional monetary policy instruments.
Today's conference touches on a range of interesting questions concerning both regions:
• Are there policy strategies that can ensure that the global economy will escape from
this very long period of very low inflation and very low real interest rates?
• Is there scope for fiscal policy to take on some of the burden of ending this period of
persistently low inflation and low interest rates?
• Are we now in a period of secular stagnation or are we in the midst of a
deleveraging process that will gradually dissipate?
• Why has investment spending failed to respond to the low level of interest rates?
• What do we believe are the factors underlying the recent slowdown in productivity
growth globally?
• Is a banking union with a common deposit guarantee scheme achievable in Europe?
• Are there opportunities for further regulatory and supervisory convergence between
the United States and Europe?
I would like to thank the participants for addressing these and other questions during today's
three panels, and I look forward to insightful discussion over the course of the day.
It is now my pleasure to introduce the European Union Ambassador to the United States, His
Excellency David O'Sullivan. The ambassador is extraordinarily well-versed to speak on the
issues of interdependence and the policy challenges we face. Welcome, Ambassador
O'Sullivan.