Fed New York chief says Trump policies should focus on bolstering US productivity

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An eagle sculpture stands on the facade of the Federal Reserve building in Washington, DC. Photo: Bloomberg

Published: 3:45am, 19 Nov 2016

Federal Reserve Bank of New York President William Dudley said any spending and tax changes from the incoming administration of President-elect Donald Trump should focus on measures that lift the productive capacity of the US economy.

“The type of fiscal stimulus probably does matter in terms of how you think about its impact on the economy and its potential impact on inflation over the medium term,” Dudley told reporters in New York on Friday.

Dudley’s remarks come a day after Fed Chair Janet Yellen cautioned lawmakers about the inflationary impact of loosening fiscal policy with unemployment at or near its lowest sustainable level and federal debt as a proportion of gross domestic product already high.

A sign for Wall Street is carved into a building located near the New York Stock Exchange. Photo: AP

Unemployment, which peaked following the financial crisis at 10 per cent in 2009, has declined to below 5 per cent. Inflation, while remaining below the Fed’s 2 per cent target, has ticked up in 2016. The Fed’s preferred gauge of prices, excluding food and energy, rose 1.7 per cent in the 12 months through September.

Trump has promised significant tax cuts and up to US$1 trillion of new spending over a decade on infrastructure, plus additional money for defence. Yellen also urged members of Congress to focus fiscal efforts on raising productivity, a theme that Dudley echoed.