william c dudley : impact of the great recession on public schools in the region remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, at the quarterly regional economic press briefing, new york city, 27 january 2012. * * * good morning and welcome once again to the new york fed ’ s quarterly regional economic press briefing. i am pleased to have this opportunity to talk with the journalists covering our region – and through you, to the people in our district. this morning i will focus on regional economic conditions, with particular attention to how the recession has affected public school spending in new york and new jersey – states that dominate the second federal reserve district. following my remarks, my colleagues will provide more details. as always, what i have to say reflects my own views and not necessarily those of the federal open market committee ( fomc ) or the federal reserve system. national economic conditions i will begin with a review of overall economic conditions. recent data suggest that the u. s. economy ended 2011 on a somewhat stronger note – the best performance since the first half of 2010. nonetheless, the amount of slack in the economy remains substantial. moreover, i think it is unlikely that the pace of growth we saw in the fourth quarter will carry through to the first half of 2012. growth of consumer spending strengthened in the fourth quarter, adding a needed boost to the economy. much of this stronger spending was for durable goods, particularly motor vehicles. in the fourth quarter of 2011, sales of light - weight motor vehicles reached the highest quarterly rate since the first half of 2008. this increase is encouraging because it suggests that consumers are now more able to borrow money to finance their purchases of cars and trucks. however, i must note that this boost is likely due in part to temporary factors. first, vehicle sales in the middle of 2011 were depressed due to supply chain disruptions stemming from the tragic earthquake and tsunami in japan. in addition, a stimulus - related tax provision that allowed businesses to immediately expense some investments expired at the end of 2011. so, some purchases were no doubt timed to occur before that expiration. moreover, for goods and services other than durable goods, the rate of growth of consumer spending has been rather tepid. the picture that emerges – up to now – is of a consumer who continues to be cautious. in addition to stronger growth of consumer spending, manufacturing output has firmed over the past several months. for example, the widely followed

that inflation, over time, is at levels consistent with the dual mandate. the committee said it now anticipates that economic conditions are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. the committee also released a statement of longer - run goals and monetary policy strategy within the context of the dual mandate, and published information on individual participants ’ expectations of the appropriate future interest rate path. as chairman bernanke explained in his press conference on wednesday, the strategy statement “ should not be interpreted as indicating any change in how the federal reserve conducts monetary policy. rather, its purpose is to increase the transparency and predictability of policy. ” further details on the discussion at the meeting will be available when the minutes are published in three weeks. i will not comment on monetary policy any further today beyond stating that monetary policy has done and will continue to do its part in supporting the recovery – but it is not all - powerful. other complementary policy actions in housing, fiscal policy and structural adjustment or rebalancing of the economy will be essential if we are to achieve the best available recovery. regional economic conditions turning now to the regional economy, growth slowed in late 2011 in new york city and new york state, whereas new jersey has seen a modest pickup. as attendees at previous regional press briefings may recall, the new york fed produces economic activity indexes to help monitor the performance of the regional economy. 2 based on these measures, economic activity has leveled off in both new york state and new york city since the summer, following above - average growth in the first half of 2011. in contrast, new jersey ’ s economy, which was sluggish throughout 2010 and into the first half of 2011, has picked up noticeably in recent months. we monitor puerto rico using an index produced by the government development bank for puerto rico. this index suggests that the island ’ s recession, which started back in 2005, may finally be ending. after bottoming out last august, activity has risen fairly sharply – reaching a one - year high in november. still, puerto rico ’ s recovery has had a number of “ false starts ” before and this measure is noisy. thus, the recent improvements will need to be sustained for longer before we can confidently declare that the island ’ s recession is over. turning to the employment situation, our region finished 2011 on a mixed note. in new jersey, private - sector job growth was quite robust in the fourth quarter, despite a small dip