William C. Dudley has a prime vantage point on the health of the national and upstate economies.
Dudley is president of the Federal Reserve Bank of New York, a position he has held since January 2009. He also serves as vice chairman and a permanent member of the Federal Open Market Committee, which formulates the nation’s monetary policy, with Ben Bernanke as its chairman. Dudley visited Buffalo last week on a trip through upstate:
Q: How is the upstate economy doing?
A: I would say it’s doing OK. There’s definitely economic recovery. I would say compared to my last trip to Buffalo [in 2012], the general tone I thought was substantially more optimistic. And I would say there’s a little bit more sense of shared vision in terms of where we’re headed going forward, trying to capitalize on expertise in health care, expertise in terms of education partnership, the medical center. Also a lot of discussion with some of the new construction activity taking place in downtown Buffalo.
Q: How about manufacturing?
A: In manufacturing, I think what happened obviously in upstate New York and especially in Buffalo was, there was a huge decline in manufacturing that began around 1950 and continued on for a very long period of time. But I really do feel like that’s sort of coming to an end.
When you look at manufacturing employment in this area, it’s about the same now as the national average. So the overdependence on manufacturing is something you would no longer apply to the Buffalo area.
The second thing I would say is that, manufacturing competitiveness of U.S. companies has actually increased over the last few years. And some of that is due to automation, so you use your workers more efficiently. But also some is due to the fact that we’re actually benefiting from lower energy costs in the United States compared to other parts of the world.
Another thing is better protection of intellectual property rights here. I talked to a few companies that do business today in China, and they’re saying, well, we’re willing to sell certain things and have certain activities take place in China, but our really good stuff we hold back and we produce here, because we don’t want to have the intellectual property essentially be appropriated abroad.
Q: Can you explain how the decisions the Federal Open Market Committee makes relate to the average person?
A: We set monetary policy to try to generate a set of financial market conditions that are conducive to achieving our objectives on growth and inflation. After the financial market crisis, obviously that generated a deep recession, which generated a lot of unemployment. So our main goal at that point in time was obviously to stimulate the economy, to try to foster more rapid growth, to really focus on the fact that the unemployment rate was much too high, both regionally and nationally.
So we’ve followed a monetary policy where we’ve kept interest rates very low, we’ve made it clear that we expect those interest rates to stay low for a substantial period of time. And we’ve been buying large amounts of assets – Treasuries and agency mortgage-backed securities – to try to put downward pressure not just on short-term rates, which we control, but put downward pressure on longer-term interest rates.
And by doing that, we, I think, have induced a situation where financial conditions are easier, credit is becoming more accessible, housing is more affordable, and so that actually sets in place the dynamics to have a sustainable economic recovery.
Now the recovery isn’t as strong as we would like, in part because we were also facing some headwinds from fiscal policy. As you remember at the beginning of the year, the payroll tax holiday came to an end, high-income tax rates were raised, and then later in the year, the budget sequester started. So this year is a tough year to gain a lot of forward momentum in the economy, because the fiscal restraint is actually quite large.
Now the good news is that this fiscal restraint is probably peaking this year, and will lessen next year and then lessen further in 2015. So we think that as that happens, the monetary policy stimulus will show through more and the economy will gradually pick up steam in terms of economic growth.
Q: Is a college education still worth the high cost?
A: With the labor market not so strong, it’s a little harder to find a job, especially coming out of ollege, than maybe it was in the past. But we find that even though there’s transition problems as you go from graduating from college and trying to get that first job, the benefits to a college education are still very, very high relative to not getting a college education.