William C Dudley: The importance of financial conditions in the conduct of monetary policy Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the University of South Florida Sarasota-Manatee, Sarasota, Florida, 30 March 2017. * * * It is a pleasure to be here today. I would like to thank the University of South Florida for sponsoring this conference. As always, what I have to say today reflects my own views and not necessarily those of the Federal Open Market Committee (FOMC) or the Federal Reserve System.1 One aspect of today’s event is the dedication of a financial laboratory to help students learn about financial markets, which I think has great value. Knowledge of how financial markets operate is an important aspect of financial and economic literacy, and it leads to greater financial security over time. For example, one important lesson is that when the promised returns on an investment offering are extraordinarily high, it is because the investment is either very risky or fraudulent. When investing, it is important to remember that if it seems to be too good to be true, it likely is! Today, I want to take the opportunity to talk about the importance of financial markets in influencing the economic outlook and, in turn, U.S. monetary policy. This is a subject near and dear to my heart.
This has led to continued, sturdy monthly job gains and a gradual diminution of the amount of slack in the U.S. labor market. Forward-looking indicators foreshadow a continuation of this trend. For example, household and business confidence has increased markedly over the past few months. 4/6  BIS central bankers' speeches  The economic outlook abroad also appears to have brightened. Growth has picked up in Europe. Commodity prices have risen, reducing the pressure on emerging market economies that are major commodity exporters. There are still significant uncertainties and risks abroad, but overall, these risks seem significantly lower than they were a year ago. Inflation has moved closer to our 2 percent longer-run objective. Headline inflation on a yearover-year basis has moved up in the past few months as the sharp declines in energy prices in late 2015 and early 2016 have fallen out of the calculation. Core inflation—which ignores the more volatile movements in energy and food prices—also has moved slightly higher. Over the 12 months through January 2017, the core personal consumption expenditure deflator has risen at about 1.75 percent, up from 1.6 percent a year earlier. Thus, I have become more confident that inflation will stabilize around the FOMC’s objective over the medium term. While there is still considerable uncertainty about fiscal policy and its potential contribution to economic activity, it seems likely that it will shift over time to a more stimulative setting.