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Fed Official Warns Tax Cuts Pose Risk to Economy

Fed Official Warns Tax Cuts Pose Risk to Economy

New York Federal Reserve President Bill Dudley struck a cautious tone with regards to the recently passed tax cuts, saying that it puts the economy on an 'unsustainable path.'

While he said the tax package that reduces corporate taxes and slash rates for many earners will bolster the economy in the short term, the benefits will come at a price.

Dudley, who is slated to step down from his post later this year, said the prospects were for another year of above-trend economic expansion, with the tax reduction bolstering the short-term outlook. The conditions are seen to help inflation rise close to the FEd's 2 percent inflation target.

However, his long-term prognosis took a gloomier turn, stating the economy could overheat.

He warned that the legislation will increase the country's longer-term financial burden, which he noted was already under other pressures such as higher debt services cost and entitlement spending as the baby-boom generation enters the retirement period.

The comments reiterated recent remarks from Fed Chair Janet Yellen, who said in November that rising public debt and deficits should raise some alarms.

The top Fed official added that financial conditions have become more supportive despite the Fed's actions to tighten monetary policy, indicating that the central bank may have to raise rates at a faster rate over the next few years.

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