NY Fed president to LI: Keep innovating, focusing on housing near LIRR

New York's top banker said Long Island's leaders should continue to back apartment housing near LIRR stations and efforts to commercialize inventions from research laboratories to boost the local economy.

William C. Dudley, president of the Federal Reserve Bank of New York, made his remarks about the Island's economy during a Newsday interview Friday, while he toured the region. He said he was struck by the multitude of local governments and the $1,300-per-month rent on a studio apartment.

The Island is part of the bank's district, which encompasses New York State, Puerto Rico, the U.S. Virgin Islands and portions of New Jersey and Connecticut.

Dudley is the No. 2 person, after Fed Chair Janet Yellen, on the Federal Open Market Committee, which sets short-term interest rates. Here are excerpts from the interview:

Status of the L.I economy

It's doing very similar to the country as a whole . . . The unemployment rate on Long Island is about 4.5 percent [in September], which is pretty low; the national average is [about] 5 percent [in September] . . . Where Long Island lags a little bit behind is the housing recovery, [which] has been more modest . . . [and] there still is a little bit more financial distress in terms of mortgage delinquency rates.

Lack of opportunity for

minorities, immigrants

Averages can be deceiving. You look at Long Island on paper and you compare it to the country as a whole, and what you see is recovery in employment is about the same as the national average . . . You look at the population of Long Island and it's highly educated compared to the country as a whole . . . And then you talk to community development organizations and you actually understand that there are a lot of problems on Long Island in terms of pockets of poverty, immigration, conflict between different groups of people.

Loss of public companies on L.I

There's been a lot of mergers and consolidations throughout the global economy. So I wouldn't think that what is happening here is specific to Long Island. I think the big issue is not where the companies are located but where the jobs are located . . . The issue for Long Island is how is it going to retain its competitiveness.

Where the jobs are

Long Island is doing well in terms of professional services, leisure, hospitality, health care, but it's been struggling, especially relative to New York City, in terms of technology. That said . . . it's important not to underestimate the benefit that Long Island gets from where it sits. About 20 percent of the [workers] who live on Long Island work in New York City, which is doing really, really well.

Spinning off businesses,

jobs from local laboratories

Technology jobs do make a lot of sense to stress because you do have a very highly educated workforce, and you have good educational institutions to turn out new people to plug into those technologies . . . One of the reasons why technology jobs have been falling [on Long Island] is that manufacturing technology jobs have been shrinking. But that's not really where the growth in technology is today. The growth . . . is really about technology services and ideas, and disruptive new businesses.

High housing costs

I was told an anecdote of a person living in a studio apartment, a young person, [paying] $1,300 a month in rent, [and that] being so high he felt that even though he had a pretty good-paying job, he didn't feel like the economics for him worked. That raised questions in my mind about what could be done in terms of land-use rules . . . [The rent] struck me as expensive.

Housing at LIRR stations

A positive development that I heard about . . . was taking the transit centers that exist on Long Island and developing them more. I live in Cranford, New Jersey, which is not that different from the types of towns that you would find on Long Island. Cranford has a New Jersey Transit stop, and they've actually built up a lot of apartment buildings around the downtown -- quite controversial when it was proposed, of course -- but it's actually been hugely revitalizing . . . It's important because young people want to live in a more urban environment . . . So if I were sitting on Long Island, I would be like, "How can I replicate that kind of environment?" . . . I think the big transit stations are a huge redevelopment opportunity.

Local impact of raising interest rates

The consequences will actually be pretty positive because as long as we're [The Fed] well justified in terms of moving, it will be a sign that the U.S. economy is actually healthy ... All the work that we've done suggests that the path of interest rates going forward over the next few years is going to be a very gradual upward slope ... I think the adjustment should be relatively smooth.

Consumer spending around the holidays

The consumer looks to be in quite good shape. Real incomes are rising. Wages look like they are flat to maybe slightly accelerating. Wage inflation looks like it's flat to maybe starting to climb. Job growth has been good ... So, people have the ability to go out and spend. You look at household net worth relative to income. It looks good. The savings rate doesn't seem particularly low. So, it looks like consumers can continue to sustain what they are doing.

Why low inflation is bad for the economy

The economy works better with a little bit of inflation ... It helps the allocation of resources. It helps people get into the right jobs that maximize the productive capacity of the economy. Think of it like a little bit of grease in the wheels of the economy. The second reason a little bit of inflation is good is that it gives us [The Fed] more scope on monetary policy, to help the economy in a time of recession. So, let's say inflation is 2 percent and short-term rates are 3 percent, you go from 3 percent to zero. If inflation is zero and short-term rates are one percent, you go from 1 to zero. You couldn't provide as much stimulus to the economy. So, having a little bit of inflation provides a little bit more room for the Fed to respond when there is a shock that threatens to cause the economy to weaken.

Too many governments

There are just so many municipalities. The statistic that really spoke to me was the number of school districts [124] on Long Island. That's a lot of school districts for 2.9 million people. You wonder about the consequences for both the cost of running the government and therefore the tax burden that comes from that, but also the complexity of navigating through the system. When I was talking to a number of financial institutions, I heard that it's very complex to get things done because the rules for each of the municipalities are different, and the response time, at least from their view, wasn't as timely as they would like.

Gold at the New York Fed

I went to see it once [after joining the New York Fed in 2007] because it is sort of interesting. There's about a half a million gold bars in the New York Fed vault. Unfortunately, it's not our gold, it's foreign countries' gold. During World War I and World War II, people basically wanted to move their gold to a place that was safe . . . and if foreign countries want their gold back, they can take it. It sits there and you can go look at it . . . When the person hands you a bar to hold, you're surprised by how heavy it is . . . I mean it's not every building that has $250 billion of gold in the basement.

On the movie 'Die Hard: With

A Vengeance,' in which the

gold is stolen

After I joined the Fed I decided that I needed to watch "Die Hard 3" again to see how they got the gold. They sort of finessed that . . . They broke through a wall, and then they made it very easy to carry tons and tons of gold away. I mean transporting this gold would be like no easy task. It's not like it sits in railroad cars ready to go.