Monetary policy adjustment in US will be gradual and cautious, Fed's Dudley says

Much had already been done to help make the financial system on both sides of the Atlantic more resilient but more still needed to be done, New York Federal reserve bank chief William Dudley said.

In remarks prepared for a speech to be delivered at a conference held at the regional Fed bank entitled "Convergence or Divergence" Dudley said more needed to be done to completely identify and eliminate the impediments to the orderly resolution of failed institutions across borders.

Among the few policy-relevant remarks on offer, Dudley said he expected inflation in the US would return to 2.0% over the next few years as the jobs market tightened and the transitory factors which had been weighing down on prices dissipated.

Economic conditions had finally warranted the start of the removal of policy stimulus, but such adjustments in monetary policy would be "gradual and cautious" he said.

That is because, "we continue to face significant uncertainties and the headwinds to growth from the financial crisis have not fully abated," he added.

The euro area was also experiencing a cyclical recovery, the Fed chief said, but risks of low inflation remained a concern, he said.

Among the subjects which the conference would broach were: Are there policy strategies that can ensure that the global economy will escape from this very long period of very low inflation and very low real interest rates?

Is there scope for fiscal policy to take on some of the burden of ending this period of persistently low inflation and low interest rates?