Fed's Dudley flags easy money now, rate rise around mid-2015

Fri Mar 7, 2014 1:52pm EST
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By Jonathan Spicer

NEW YORK (Reuters) - The Federal Reserve is not about to back off its highly accommodative policy, though investor predictions of a rate rise by midway through next year are reasonable, an influential U.S. central banker said on Friday.

New York Fed President William Dudley outlined some bright spots in the long U.S. recovery from recession, calling U.S. economic prospects "reasonably favorable."

But Dudley, a key Fed decision-maker alongside Chair Janet Yellen, stressed that the labor market is still hobbled, saying in a speech he would like to see faster economic growth and more rapid progress in lowering unemployment and raising inflation.

Dudley did not comment specifically on the Fed's bond-buying policy. And while his comments on the economy were relatively upbeat, his still-dovish stance on policy reinforces the notion that the Fed is nowhere near ready to tighten after more than five years of near-zero interest rates.

The market generally expects the Fed to raise rates "sometime toward the middle of 2015," he said at Brooklyn College. "I think those are a very reasonable set of expectations based on what we know today, and our economic forecasts."

According to forecasts published in December, 12 of the Fed's 17 policymakers expect to start to tighten policy in 2015. Two officials predicted the move would come this year, and three said not until 2016.

The Fed, tasked with obtaining maximum sustainable employment in the world's largest economy, has promised to keep rates low until well after U.S. unemployment falls below 6.5 percent, as long as inflation stays in check.

The jobless rate rose to 6.7 percent last month from 6.6 percent in January, according to fresh data that also showed better-than-expected jobs growth last month.   Continued...

William Dudley, President of the New York Federal Reserve Bank, speaks at Brooklyn College in the Brooklyn borough of New York, March 7, 2014. REUTERS/Keith Bedford