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 "We think we can get the unemployment rate considerably lower and
still not have an inflation problem," William Dudley, president of
the New York Federal Reserve Bank, told a Puerto Rico accounting
group.
In May, the U.S. jobless rate stood at 6.3 percent, the lowest level
since the end of 2008, and unchanged from April. Inflation has been
running below the Fed's 2 percent goal, although some recent
readings have been firmer.
"The market expectations are that the Federal Reserve will start to
raise short-term interest rates around the middle of 2015 - that
sounds to me like a reasonable forecast," said Dudley after a speech
in which he warned that Puerto Rico's growing debt load may be
unsustainable. "But, you know, forecasts often go astray."
Dudley, who as chief of the New York Fed holds a permanent vote on
the U.S. central bank's policy-making panel, speaks from experience:
Over the past several years, the Fed has been frequently overly
optimistic about economic growth prospects.
At the same time, the Fed has underestimated how quickly
unemployment will drop.
Dudley's comments, which often reflect dominant sentiment at the
Fed, suggest the central bank is in no hurry to raise rates from
their current near-zero level once it winds down its bond-buying
stimulus later this year.
Traders of short-term interest-rate futures expect the Fed to begin
raising rates in June 2015.
Speaking at Stanford University, San Francisco Fed President John
Williams said he is "pretty optimistic" about the mid-term economic
outlook.
"We are about two years off from being an economy that's at full
employment, back to normal, and inflation back to normal levels,"
Williams said.
Williams, whose views are often in sync with those of Fed Chair
Janet Yellen, said signs point to inflation rising from current low
levels but remaining "well within the range of what the Fed is
looking for."
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Charles Plosser, the hawkish chief of the Philadelphia Fed, said at
yet a different venue that he had "growing concerns that we may have
to adjust our communications in the not-too-distant future.
Specifically, I believe the forward guidance in the statement may be
too passive."
Plosser's comments reflect concern among a minority at the Fed that
the Fed may dally too long before raising rates, allowing inflation
to spiral upwards out of control. Dudley made it clear on Tuesday
that he did not share those concerns.
"In the current environment, it is still very, very appropriate to
continue to follow a very accommodative monetary policy because
we're making progress toward our objectives but we have not yet
reached our objectives," Dudley said.
(Reporting by Reuters in San Juan, Puerto Rico, and Lisa Lambert and
Howard Schneider in Washington; Writing by Ann Saphir; Editing by
Leslie Adler and Jan Paschal)
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