The U.S. economy has begun to recover, but growth will likely be modest, keeping price pressures under wraps, New York Fed president William Dudley said on Friday.
Dudley told a Center for the New Economy conference in San Juan, Puerto Rico, that he expects the economy to keep expanding but at a "somewhat slower" growth rate than in the second half of 2009, as temporary boosts from government stimulus and the inventory cycle fades.
U.S. gross domestic product, a gauge of economic growth, grew 2.2 percent in the third quarter and 5.7 percent in the fourth quarter of 2009.
"With modest growth, we expect price pressures to remain contained," said the president of the New York Fed, who has a permanent voting seat on the central bank's policy-setting Federal Open Market Committee.
"Nonetheless, it's far too early to pop the champagne corks," he said.
Unemployment remains "unacceptably high" and households and smaller businesses' access to credit is still constrained, Dudley said.
The commercial real estate market remains under stress and smaller banks, especially those with large exposures to commercial real estate, are under pressure, Dudley said.
"Finding ways to address problem assets and the health of the exposed banks is fundamental to restoring the banking industry to the firm footing that is needed to properly support economic growth," Dudley said.
Authorities also need to take a number of steps to make the financial system more resilient, he said.
These include higher capital requirements, larger liquidity buffers and ensuring compensation practices do not put financial stability at risk, he said.
"It will take time, but the regulatory community and the political leadership will fail to meet our shared responsibilities as stewards if we do not implement the necessary reforms in a timely and effective manner," Dudley warned.
Puerto Rico is part of the Second District of the Federal Reserve System, along with New York, the U.S. Virgin Islands and parts of New Jersey and Connecticut.
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