One of the US Federal Reserve’s most powerful policymakers pushed back against an increasingly hawkish tone from other Fed officials worried about inflation, saying he saw no need for the US central bank to reverse course.
New York Federal Reserve Bank President William Dudley said on Friday the Fed was “still very far away” from achieving its mandate of maximum sustainable employment and price stability, even though the economy seems to be on firmer footing.
His caution contrasted with comments from three other Fed officials on Friday, who focused on the risks that the US central bank’s policies could fuel inflation.
Earlier on Friday, the US government reported a gain of 216,000 jobs last month and also reported a decline in the jobless rate to a two-year low of 8.8 percent.
Dudley said he was “hopeful that jobs growth will increase more rapidly in the coming months,” but even if the economy added 300,000 jobs per month, there would still likely be considerable slack in the labor market at the end of next year.
Last month’s employment figures had initially driven expectations that the Fed might end its easy monetary policy sooner than expected.
“A stronger recovery with more rapid progress toward our dual mandate objectives is what we have been seeking,” Dudley told a conference in San Juan, Puerto Rico. “This is welcome and not a reason to reverse course.”
The Fed has kept interest rates near zero since December 2008 and launched a US$600 billion bond-purchase program in November last year to further support the US economic recovery.
At its last meeting, the Fed unanimously voted to stick to the bond purchase program, which is due to end in June.
The Fed’s upcoming policy meeting on April 26 and April 27 is its last scheduled meeting before the bond-purchase program is scheduled to end.
Dudley told reporters he would be surprised if the program was not completed, but said the benefits of further round of so-called quantitative easing had “diminished a bit.”
Philadelphia Federal Reserve Bank President Charles Plosser and Richmond Federal Reserve Bank President Jeffrey Lacker, both considered inflation hawks, said the Fed could raise interest rates this year, depending on how the economic recovery evolves.
“It wouldn’t surprise me if we needed to act before the end of the year,” Lacker told CNBC television, adding that inflation is a bigger risk to the economy this year than it was last year.
Lacker said he had not yet made up his mind on whether he thinks the Fed should stop short of the full US$600 billion of its bond-buying program.
Dallas Federal Reserve Bank President Richard Fisher also took a hawkish tone in comments on Friday, warning that rising inflation worldwide might start to push up wages in Europe and the US.
However, Minneapolis Federal Reserve Bank President Narayana Kocherlakota said that a sufficiently tough central bank can control inflation even if fiscal policy is so loose that it risks a sovereign default.
Most leading economists do not expect the Fed to increase interest rates this year, a Reuters poll found on Friday.
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