Reuters: Economic News: Fed's Dudley hopeful on Europe

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Fed's Dudley hopeful on Europe Mar 27th 2012, 14:35 WASHINGTON | Tue Mar 27, 2012 10:35am EDT WASHINGTON (Reuters) - A top Federal Reserve official said on Tuesday that Europe seemed to be coming to grips with its debt crisis and said the U.S. central bank probably does not need to take further actions to ward off potential dangerous spillovers. William Dudley, president of the New York Federal Reserve Bank, said European liquidity concerns were easing and funding costs for governments throughout Europe had declined. "I am hopeful that Europe can effectively address its current fiscal challenges," Dudley told the U.S. House of Representatives Financial Services Committee. "At this time, although I do not anticipate further efforts by the Federal Reserve to address the potential spillover effects of Europe on the United States, we will continue to monitor the situation closely." The U.S. economy was growing moderately, Dudley said, though he warned that strains in financial markets "continue to pose significant downside risks" to the outlook. He noted that dollar swaps that the U.S. central bank had set up for European financial institutions, together with actions by the European Central Bank to add liquidity, had helped add stability to Europe's banking system. "In conjunction with the ECB's long-term refinancing operations, the swaps have helped European banks avoid the significant liquidity pressures we feared a few months ago and have reduced the risk that they would need to sell off their U.S. dollar assets abruptly," he said. European officials continue to discuss how to build up a credible funding firewall to further reassure markets that a debt crisis that has severely affected some countries like Greece will not be permitted to spread to central Europe. Dudley stressed that if they do not decisively address the crisis, there could still be adverse consequences for the United States. "If economic conditions in Europe were to weaken significantly, demand for U.S. exports would decrease," he said. "This would hurt domestic growth and have a negative impact on U.S. jobs." In addition, that could put pressure on the U.S. banking system, Dudley cautioned. (Reporting By Glenn Somerville and Lucia Mutikani; Editing by Chizu Nomiyama) Link this Share this Digg this Email Reprints

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