William C Dudley: Regional and national economic conditions 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), before the Morris County Chamber of Commerce, Florham Park, New Jersey, 18 September 2012. *  *  *  Good afternoon, I am pleased to be in northern New Jersey to address the 8th Morris County Economic Development Corporation (MCEDC) Business Growth Forum – an annual event organized by the Morris County Chamber of Commerce. It is always a pleasure to speak with the business community and I thank you for inviting me here today. I get out of my office in New York City regularly to inform myself – first-hand – about economic conditions and challenges across the second Federal Reserve District. Each visit within the region helps me to strengthen relationships with the diverse people of this District and build a deeper understanding of the economic challenges that we face. Today, I want to talk a bit about the Fed – what we do and why we do it. Then I’ll provide some thoughts about the national and local economic outlook. Normally in these regional outreach speeches I say little about monetary policy. But since the Federal Reserve made some meaningful decisions last week and it is important for people to understand the reasons and motivations for our actions. I will conclude with a brief discussion of policy.
Although substantial progress has been made, many households still need to rebuild their net worth following the housing bust. More than 20 percent of homeowners with a mortgage are “underwater” – meaning they owe more on their home than it can be sold for. •  Fiscal drag. State and local governments have been cutting spending for over two and half years and federal government spending is also contracting. While fiscal consolidation is essential over the medium to long term, spending cuts reduce demand and are a drag on near-term growth. •  Risks relating to Europe. The crisis in the euro area has reduced the demand for U.S. exports and weighed on financial markets. •  Fiscal uncertainty at home. Families and firms face elevated uncertainty relating to future taxes and government spending, in particular from the so-called “fiscal cliff” –  4  BIS central bankers’ speeches  the prospect of sharp increases in taxes and cuts in spending at the start of 2013 if Congress and the White House cannot agree on an alternative fiscal plan. Given the signs of improvement in some of these areas, including the slow but steady progress in healing balance sheets and restoring the supply of credit, I anticipate that the pace of economic growth will gradually pick up, supported by very low interest rates. But heading into the FOMC meeting last week, I judged that, if we did not ease monetary policy further, the pace of improvement would be unacceptably slow.