William C Dudley: Prospects for the economy and monetary policy Speech by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the New York University’s Stern School of Business, New York, 28 February 2011. *  *  *  It is a pleasure to have the opportunity to speak here today. My remarks will focus primarily on two areas. First, what is the outlook for economic activity, employment and inflation? In particular, what are the areas of vulnerability that we should be most concerned about? Second, what does the outlook imply for monetary policy? As always, what I will say reflects my own views and opinions, not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System. In my talk, I’ll argue that the economic outlook has improved considerably. Despite this, we are still very far away from achieving our dual mandate of maximum sustainable employment and price stability. Faster progress toward these objectives would be very welcome and need not require an early change in the stance of monetary policy. However, I’ll also focus on some issues with respect to inflation that will merit careful monitoring. In particular, we need to keep a close watch on how households and businesses respond to commodity price pressures. The key issue here is whether the rise in commodity prices will unduly push up inflation expectations. Inflation expectations are well-anchored today and we intend to keep it that way.

Examples of principles of particular relevance include:   Principle 8 (‘market participants should be clear about the capacities in which they act’, including to their own clients);    Principle 9 (‘market participants should handle orders fairly and with transparency in line with the capabilities in which they act’ – which assigns specific duties to clients, including being aware of  2  https://www.globalfxc.org/  3  eg https://www.newyorkfed.org/fxc/index.html, https://www.bankofengland.co.uk/markets/london‐foreign‐exchange‐joint‐standing‐committee or http://www.sfemc.org/ 4 https://www.theinvestmentassociation.org/assets/files/press/2018/FX%20Global%20Code_summary.pdf 5  https://www.theinvestmentassociation.org/assets/files/consultations/2018/20181105‐guidetosigninguptothefxgobalcode.pdf  6  https://www.treasurers.org/technical/codes 6  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  6  responsibilities they should expect of others, being aware of risks associated with the transactions they request and undertake, and regularly evaluating the execution they receive);   Principle 12 (‘market participants should not request transactions… with the intent of disrupting market functioning or hindering the price discovery process’); and    Principle 31 (‘market participants should have independent processes in place to mark-to-market trading positions to measure the size of their profit and loss and the market risk arising from trading positions’)  Throughout the whole Code, however, there is no suggestion of a ‘one size fits all’ approach: for buy-side firms, as for all organisations covered by the Code, proportionality is a key principle.