Fed President Dudley Does-Right for Stocks

Major indices advanced today following comments from Federal Reserve Bank of New York president and chief executive officer William Dudley who said recent economic indicators point to a temporary downturn while also suggesting there was no rush to raise interest rates.

The Dow Jones Industrial Average and the S&P 500 both rose 0.66 percent to close at 17,880.85 and 2,080.62, respectively, while the Nasdaq gained 0.62 percent to 4,917.32 and the WWD Global Stock Tracker advanced 0.31 percent to 116.16.

In remarks to regional business leaders in Newark, N.J., Dudley said “economic performance in this cycle has been disappointing compared to historical patterns.” On Friday, the Labor Department said there were just 126,000 jobs added to the employment rolls, which is well below the over 200,000-plus jobs many economists expected. Markets were closed on Friday due to the holiday.

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“Even though household wealth relative to disposable income is nearly at its pre-financial crisis level and conditions in labor markets are substantially improved, consumer spending growth has been slower and the personal saving rate higher than what we would have expected based on past historical relationships,” Dudley noted in a copy of his prepared statement. “Similarly, even with low mortgage rates, single-family housing construction has been surprisingly sluggish. And, despite very accommodative financial conditions and record corporate profits, growth of business fixed investment has been tepid.”

Dudley added that retail sales, the ISM Manufacturing Index, production and housing data also reflected a “softer performance” of the economy. Still, Dudley, who serves as a permanent member of the Federal Open Market Committee (FOMC), which is responsible for setting the country’s monetary policy, said that he sees “these downside surprises as reflecting temporary factors to a significant degree.”

Dudley said that he would “monitor developments” to see if Friday’s jobs report signaled ongoing labor woes, which investors took as a better chance the Fed would delay a rate hike.