New York Fed's Dudley Strikes Back at Critics

William Dudley
William Dudley

William Dudley, president of the Federal Reserve Bank of New York, struck back at critics of the Fed's asset buying program, saying they "do not understand" the tools available to the Fed.

"People do not understand clearly" that "we can have an enlarged balance sheet and not have a long-term inflation problem," Dudley said, according to Bloomberg News. "We are very confident of our ability to exit when the time comes."

Domestic and international critics have said the asset-buying program, known as quantitative easing, will stoke inflation, weaken the dollar and hurt the global economy.

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A group of former government officials and economists wrote an open letter to Fed Chairman Ben Bernanke, calling on him to halt the program. The letter will appear in The Wall Street Journal and The New York Times.

The governments of China, Brazil and Germany have all attacked the scheme, with German Finance Minister Wolfgang Schaeuble calling it "clueless."

Dudley said that the Fed will be able to moderate the demand for credit by paying interest on excess reserves.

"That tool we did not have prior to the fall of 2008," Dudley said. "So if you're reading the old money and banking textbooks, yes, you would be very concerned that the increase in the size of the Fed's balance sheet is going to ultimately lead to a long-term inflation problem."

Annual core inflation, which excludes volatile food and energy prices, was 0.7% in October, according to economists surveyed by Bloomberg. That would be the lowest annual rate since 1961.

The Department of Labor is due to report inflation figures on Nov. 17.