UPDATE 1-Fed"s Dudley says job growth not as strong as desired
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NEW YORK Nov 20 (Reuters) – Recent growth in the U.S. job market has been “ok” but not as strong as the Federal Reserve would like to see, New York Fed President William Dudley said on Wednesday.
Dudley, an influential official at the U.S. central bank, said workforce productivity will be a focus for the Fed and also a “wild card” in the prospects for overall gross domestic product growth. He predicted GDP growth would pick up to a pace of between 2.5 and 3 percent next year, and yet stronger in 2015.
He noted however that the Fed’s forecasts have been too optimistic in past years and said there is “a lot of uncertainty” around his prediction for the world’s largest economy.
He doesn’t expect inflation to rise to the Fed’s 2-percent goal until 2015 or so. “Gradual improvement” is the most likely scenario in the labor market, Dudley said.
“The problem we’ve had in the last few years is the payroll growth has been ok, not as strong as we’d like, but relatively strong relative to the underlying growth of the economy,” Dudley said at a press conference at the New York Fed.
“Productivity growth has been very very weak,” he said. “So one of the questions for 2014 is what will happen with productivity growth because that will determine how much the real GDP growth translates to actual gains in employment.”
To boost the economy in the wake of the recession, the central bank has kept interest rates near zero and is currently buying $ 85 billion in bonds monthly to spur investment and hiring.
It wants to see a sustained improvement in the labor market before reducing the quantitative easing program, so investors are keen to hear what Dudley and other Fed officials think about recent job growth.
Payrolls grew at a better than expected clip last month, and unemployment rose slightly to 7.3 percent.
“What I want to see is a pick up in the overall growth momentum of the economy,” Dudley said, repeating he would need to be confident that any labor-market improvement is sustainable before trimming QE.
When the Fed made its shock decision in September not to taper its bond buying, it cited tighter financial conditions that threatened the economic recovery.
On Wednesday, Dudley said: “I would be most concerned by a large rise in rates if that rise in rates were occurring in a way that were inconsistent with what I thought was likely to actually happen in terms of the trajectory of short term rates, in terms of our decision of large scale asset purchases, in terms of the timing of (policy) liftoff.”
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