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Fed's Dudley Says Stock Volatility Hasn't Changed His Outlook

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Federal Reserve Bank of New York leader

William Dudley

said Wednesday the stock market’s wild swings over recent days haven’t changed his assessment of the economy and monetary policy.

“Having a bump like this has virtually no consequence in my view to the economic outlook,” Mr. Dudley said at an event held by the European American Chamber of Commerce and

Thomson Reuters

in New York. “My outlook hasn’t changed because the stock market is a little bit lower than it was a few days ago. It’s still up sharply from where it was a year ago.”

But he suggested central bankers should monitor the situation.

“If the stock market were to go down precipitously and stay down, then that would actually feed into the economic outlook, and that would affect my view for monetary policy,” Mr. Dudley said. “So far this is a big story” in the press and for market participants, “but I don’t think it’s a big story at all for central bankers.”

Stock prices have experienced wide swings since the release of U.S. jobs data Friday that was strong enough to suggest to some the Fed may move short-term interest rates up more than had been expected this year.

Fed officials have penciled in three rate increases for 2018. Wage gains data in the January jobs report suggested inflation may be ready to pick up, which rattled markets. Long-term bond yields also have been rising, in another sign markets are undergoing a shift after an extended period of strength.

Fed officials haven’t said much about the market tumult, but in recent weeks have pegged asset market values as high, although not in bubble territory. Some officials had said a modest selloff wouldn’t trouble them, and that it could be a healthy event.

Mr. Dudley, who is set to retire this summer, spoke Wednesday at an event about banking culture. The vice chairman of the rate-setting Federal Open Market Committee has been a critic of what he sees as a troubled ethical culture at banks.

He addressed problems at

Wells Fargo

& Co., after the Fed on Friday said it was forcing the removal of board members and limiting the bank’s growth following a sales practice scandal. “I think Wells Fargo understands they have to change their culture,” Mr. Dudley said Wednesday.

Mr. Dudley also said he believes a push in Washington to roll back financial regulation ultimately will be limited. “I don’t think the deregulation swing is going to be that great” and that the bulk of postcrisis rules that were aimed at making the financial system safer and more resilient will be kept, he said.

“I’m pretty optimistic” that to the extent rules are changed, they will be around the edges, rather than through a large rollback, Mr. Dudley said. He added that “we don’t want to go back to where we were in 2007 and 2008.”

Write to Michael S. Derby at michael.derby@wsj.com



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