william c dudley : the economic outlook and the role of monetary policy remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york and chairman of the committee on the global financial system ( cgfs ), at the economic club of new york, new york city, 25 march 2013. * * * krishna guha, simon potter, jamie mcandrews, lorie logan, kevin stiroh, paolo pesenti, richard peach, jonathan mccarthy and others on my staff helped with the preparation of these remarks. clearly detailed accompanying charts to this speech can be found in the pdf document on the us federal reserve website. [ for clarification, exhibits 8 and 14 have been revised to indicate that the charts show fiscal years ]. it is a pleasure to have the opportunity to speak to the economic club of new york again. today, i will focus on the economic outlook and the role of monetary policy. i will argue that the fundamentals underpinning the u. s. economy are improving and monetary policy is gaining additional traction. but this may not immediately lead to stronger growth because of the recent increase in fiscal restraint. as a result, i expect that labor market conditions will improve only slowly and that inflation will remain muted. consequently, it will be appropriate for monetary policy to remain very accommodative. as always, my views are my own and may not necessarily reflect those of the federal open market committee ( fomc ) or the federal reserve system. economic outlook : tug of war between improving fundamentals and fiscal restraint the u. s. economy remains on the slow growth track that has persisted since the recession ended in mid - 2009. in fact, in 2012 real gdp grew just 1. 6 percent, below the 2. 2 percent rate of the preceding two years. this lackluster and disappointing performance masks the fact that the underlying conditions that support growth are gradually improving. however, in the near - term, this improvement in fundamentals is being offset by increased fiscal drag. let ’ s first examine the fundamentals, which have improved in at least six ways. first, household deleveraging is now well advanced. household debt has declined significantly relative to income ( exhibit 1 ). in the same vein, the household financial obligations ratio has fallen to levels last seen in the early 1980s ( exhibit 2 ). 1 second, the structural adjustment in housing has largely run its course. activity and prices are firming, supported

, and for fiscal and financial policies. as part of the improved disclosure of policies and intentions, timely and comprehensive dissemination of the public sector ’ s balance sheet and income statement clearly is necessary if market turbulence is to be reduced. such disclosure helps identify pressures or problems that might otherwise be allowed to fester. for example, more timely, continuous and comprehensive release of data on foreign exchange reserves may encourage earlier and appropriate policy action in the face of large - scale speculative pressures. transparency is most effective when it is an established element in a clearly articulated, goal - oriented process. sensitivity to the changing needs of the marketplace for information - both statistical and qualitative - can be developed only through an ongoing dialogue with market participants. experience suggests that in today ’ s 24 - hour trading environment with instantaneous access to information everywhere, authorities are well - advised to speed up their disclosure and explanation of their actions and intentions. conclusion in closing, the recovery in asia, and particularly korea, is remarkable indeed, and owes much to the energy and hard work of its people, enlightened political leadership, and the substantial and focused efforts of policymakers to implement sound macroeconomic and financial policy. but the recovery is not yet complete and much remains to be done. moreover, the rapidity and severity of the developments of the last several years, indicative of the transformation of the international financial landscape, underscore the importance to crisis prevention of ongoing vigilance and robust institutional structures, and the awareness that we can never let our guard down. while the crisis did substantial damage, it has not fundamentally affected asia ’ s prodigious economic strengths. but if asia is to realize its potential, it is critical that authorities attend to the unfinished business that remains while continuing to put in place longer - term measures to promote financial resilience and sustainable growth. asia is at an important crossroads and there is now a unique opportunity to consolidate recent reforms and implement lasting change that will pay dividends for years to come. korea ’ s history, both longer - term and more recent, gives me every confidence that your country, assisted ably by the bank of korea, will rise to these challenges with skill and vigor, ensuring that the next 50 years will be even more successful than the last. thank you for your kind invitation and attention. supported by the miracles of modern technology, i would be happy to take any questions you may have.