A top Federal Reserve official signaled on Friday the central bank won't tighten monetary policy any time soon, even as the jobs recovery looked set to quicken.
New York Fed President William Dudley told business leaders in Queens, New York, that the economic outlook has improved in the past six months.
But he said, the Fed is still very far away from achieving its dual mandate of high employment and price stability.
Faster progress toward these objectives would be very welcome, he said.
Dudley, who was a core advocate for the Fed's easy money policy, is seen as one of the more dovish members of the Fed's policy-setting Federal Open Market Committee. The committee meets next week and is not expected to alter its policy. Last November, the Fed said it would buy $600 billion in Treasury bonds to further support the recovery, with benchmark interest rates already near zero.
Dudley said the February jobs report, which showed the economy added 192,000 jobs that month, has made him more confident about the job outlook. The unemployment rate fell to 8.9 percent.
Although there is still uncertainty over the timing and speed of the labor market recovery, I do expect job growth will increase considerably more rapidly in the coming months, Dudley said. A substantial pick-up is sorely needed.
Even if the economy were to add 300,000 jobs per month, though, there would still be considerable slack in the labor market through 2012, he said.
Dudley reiterated that a stronger recovery is not a reason for the Fed to reverse course.
FOOD INFLATION VS THE iPAD
Dudley faced persistent questions from the audience on food inflation. The president of the Federal Reserve Bank of New York said people forget that even as the price of food is rising, other prices are falling. He mentioned the price of the iPad 2, prompting guffaws from the audience.
In his speech, Dudley said some of the commodity price rises are likely to be temporary and unlikely to feed through into a sustained rise in inflation.
While rising commodity prices may be giving some of you a bad headache, they are not likely to lead to a sustained rise in inflation to levels inconsistent with our dual mandate, Dudley said.
Uprisings in the Middle East and Africa have contributed to the recent rise in energy prices and muddied the water somewhat for policymakers. Dudley noted that the situation in the Middle East and Africa remains uncertain and dynamic.
But, he said, U.S. consumers' expectations of future inflation are currently stable. He said a sustained rise in these expectations would be a threat to price stability that would not be tolerated.
If that were to occur, that would be a troublesome development that would complicate the pursuit of our dual mandate, he said.
(Reporting by Kristina Cooke, Editing by Jan Paschal and Chizu Nomiyama)