The U.S. recovery is proceeding at a moderate pace, but the economy has a considerable way to go before it meets the Federal Reserve's dual mandate of full employment and price stability, a top Fed official said on Thursday.
New York Federal Reserve Bank President William Dudley told students in New Paltz, New York that unemployment still remains unacceptably high and most measures of underlying inflation trends remain below the Fed's comfort zone.
The recovery remains moderate and we still have a considerable way to go, said Dudley, who is seen as one of the more dovish Fed officials.
Dudley said a weaker-than-expected economic performance in the first quarter probably will prove temporary.
He noted, for example, a better jobs picture.
The labor market has shown further improvement, he said. The U.S. economy added 244,000 jobs in April, according to the government's closely watched non-farm payrolls report. I am hopeful that job growth will continue to strengthen in coming months.
Dudley also pointed to signals of manufacturing growth and improving financial conditions as well as fiscal measures that are supporting demand in the United States. He added that that demand from overseas remains robust, supporting U.S. exports.
He said manufacturing production fell in April largely because of supply disruptions associated with the earthquake in Japan.
Dudley said headline inflation has risen somewhat above the Fed's desired level and that commodity price increases over the past year probably will push it up further in the next few months.
But, he added, he expects this to be temporary as commodity prices -- which have dropped recently -- either stabilize or fall further.
It is noteworthy, however, that even with the sharp rise in oil and food prices over the past year (and notwithstanding the more recent drops), there has been limited pass-through into the prices of other goods and services, he said.
There are a number of risks to the economic recovery that bear watching, Dudley said.
Aggressive near-term government spending cuts or tax increases could slow economic growth at least in the short-to-medium term, he said. But he added that a credible plan to tackle the budget deficit is sorely required.
Other risks include higher commodity prices and recent house price declines cutting into household spending more than expected.
(Reporting by Kristina Cooke, Editing by Chizu Nomiyama)