Dudley: Fed can’t fix economy overnight

* Dudley: Fed has no magic wand for economy

* Dudley says Fed can provide “essential” support

* Repeats more easing needed unless economy improves

* Monitoring potential broader impact of foreclosure mess

By Kristina Cooke

ITHACA, N.Y., Oct 25 (BestGrowthStock) – The U.S. Federal Reserve
can’t “wave a magic wand” to fix the economy overnight, but it
can provide it with “essential” support, a top Fed policymaker
said on Monday.

William Dudley, president of the New York Fed, repeated in
a speech at Cornell University that he believes the U.S.
central bank should do more to boost the recovery unless
economic conditions improve.

Dudley, who has been among the most outspoken Fed officials
in favor of more monetary easing, said the road to full
recovery is likely to be “long and bumpy” and that momentum has
slowed in recent months.

“The Fed cannot wave a magic wand and make the problems
remaining from the preceding period of excess vanish
immediately,” Dudley said.

“But we can provide essential support for the needed
adjustments.”

The U.S. central bank has already cut interest rates to
near zero and bought $1.7 trillion in mortgage-related and
Treasury debt to further push down borrowing costs.

Markets now widely expect the Fed to say at its next
policy-setting meeting on Nov 2 -3 that it will buy more
long-term assets.

“In a recent speech, I said that both the current levels of
unemployment and inflation and the timeframe over which they
are likely to return to levels consistent with our mandate are
unacceptable,” Dudley said.

“I said that I thought further Fed action was likely
warranted unless the economic outlook were to evolve in a way
that made me more confident we would see better outcomes for
both employment and inflation before too long.”

The president of the New York Fed has a permanent vote on
monetary policy and is the vice chair of the policy-setting
Federal Open Market Committee.

EYEING FORECLOSURE MESS

Dudley repeated that the Fed is closely monitoring
developments in the mess over U.S. foreclosure practices for
potential impact on housing and financial markets and the
broader economy.

State and federal officials are investigating allegations
that for years banks have not reviewed foreclosure documents
properly or have submitted false statements to evict delinquent
borrowers. [ID:nN11106777] The Fed, for its part, is reviewing
major bank mortgage servicers’ foreclosure practices.

“We are also keeping an eye on banks’ potential liabilities
where they made representations about mortgages bought by
investors that may not be correct in some cases,” Dudley said.

“We want to ensure the housing finance business is
supported by robust back-office operations … so that
homebuyers and investors have full confidence in the process.”

(Reporting by Kristina Cooke, Editing by Chizu Nomiyama)

Dudley: Fed can’t fix economy overnight