Former New York Fed President Says Risk Of Hard Landing Higher Now: 'We Are Actually In A Worse Place Today'

Former New York Fed President Bill Dudley expressed skepticism about the current economic environment and reportedly said that the possibility of a hard landing is higher now.

"Uncertainty has gone up a lot. And I think it’s sort of interesting that markets are not really fully focused on that because the risk of a hard landing is higher now because the Fed isn’t going to really know what’s the appropriate policy to do until they get a lot more information. And it’s going to take time for that information to be received," Dudley told Bloomberg TV.

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The Federal Reserve hiked the policy rate by 25 basis points on expected lines but the looming concern is about a potential credit crunch in the economy. Rates are on an upward trajectory, the crisis hasn't abated fully and the flight of depositors is still a potential risk for the banking system.

These worries are expected to translate into lower lending from banks and thereby create a credit crunch in an economy that is already expected to slow down.

Price Action: Following the policy announcement, major Wall Street indices witnessed a sell-off on Wednesday as the central bank signaled it might soon pause future interest rate hikes, but Chair Jerome Powell also reasserted his commitment to bring inflation down to 2%. The SPDR S&P 500 ETF Trust SPY closed 1.7% lower and the Invesco QQQ Trust Series 1 QQQ lost 1.36%.

Dudley also pointed out that it's not going to be easy to evaluate some important questions like how are the banking woes going to affect credit conditions and how much is it going to affect economic growth.

"So, I think that we are actually in a worse place today than we were a few weeks ago because there are two forces. One force is keeping inflation high and the other force is slowing the economy down. And we don’t know which one is going to dominate or for how long," Dudley said.

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