SAN JUAN, Puerto Rico (Dow Jones)--A key Federal Reserve official warned Friday against moving prematurely to tighten monetary policy, saying as far as the U.S. economy has come, the recovery process remains "tenuous."
"A stronger recovery with more rapid progress toward our dual mandate objectives is what we have been seeking" and have been expecting at the central bank, Federal Reserve Bank of New York President William Dudley said. "This is welcome and not a reason to reverse course."
Dudley's comments came from the text of a speech he was to present before the E-3 Summit of the Americas trade forum. He spoke in the wake of the release of solid hiring data for March, and as a number of other Fed officials have been arguing the Fed is getting close to the time it will need to tighten monetary policy. Dudley is the vice chairman of the monetary-policy-setting Federal Open Market Committee, and shares with Fed Chairman Ben Bernanke the belief that the economy still needs considerable support from the Fed. He has been a staunch advocate of the central bank's $600 billion bond-buying program.
Other Fed officials have been worried by rising food and energy prices, and believe with a recovering economy, it may soon be time for the Fed to move toward tighter policy. Dudley countered "it is important to emphasize that we at the Federal Reserve have been expecting the economy to strengthen." He added "we must not be overly optimistic about the growth outlook" because the economy is still working to recover from the events of the last few years.
"We are still very far away from achieving our dual mandate of maximum sustainable employment and price stability," Dudley said. "Faster progress toward these objectives would be very welcome."
The central banker warned events in Japan and the Middle East could prove problematic for the economy. He explained its possible higher oil prices may "cut into household purchasing power," and Japan's troubles may "dampen" growth due to supply chain issues.
Dudley's take on labor markets was mixed. While he was pleased by the March jobs report, he noted hiring has a long way to go. "Although there is still uncertainty over the timing and speed of the labor market recovery, I am hopeful that job growth will increase more rapidly in the coming months," Dudley said.
But he added, "even if we were to generate growth of 300,000 jobs per month, we would still likely have considerable slack in the labor market at the end of 2012." He added "the unemployment rate is much too high" right now.
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If the hawks are lucky they get the end of reinvestment and extended period off this year, hikes?I don't think so
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