Dudley says threshold high for changing taper plans

Thu Mar 6, 2014 11:22am EST
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By Luciana Lopez

NEW YORK (Reuters) - The U.S. economic outlook would have to change substantially for the Federal Reserve to alter the pace at which it is winding down asset purchases, a top U.S. central banker said on Thursday.

While growth is likely to quicken this year, the threshold for changing course on stimulus withdrawal is "pretty high," said New York Fed President William Dudley during an event hosted by The Wall Street Journal.

"The outlook would have to change in a material way relative to my expectation," he added.

The Fed this year started winding down five years' worth of unprecedented accommodative policies meant to fight the 2007-09 recession and foster a stronger recovery. That means the central bank will eventually stop buying trillions of dollars worth of bonds and holding overnight interest rates at zero.

Dudley acknowledged that recent fierce winter weather in parts of the country have depressed activity in early 2014, but said those effects will be both hard to gauge and transitory.

"The weather is going to make reading the data over the near term a little more difficult," he said.

"The first quarter will probably be less than 2 percent for annualized growth," Dudley said. In the spring, "we'll see some of these weather effects dissipate."

Still, he said the economy would likely be better this year than last, "on a 3 percent type of growth trajectory, which should be enough to generate payroll gains that lead to continued gradual improvement in the labor market."   Continued...

President of the Federal Reserve Bank of New York William Dudley attends a forum organized by Mexico's Central Bank in Mexico City October 15, 2013. REUTERS/Tomas Bravo