Fed watching recent weakness; rate-hike timing unclear: Dudley

[NEWARK] The timing of US interest rate hikes are uncertain and the Federal Reserve must watch that the surprising recent weakness in the US economy does not foreshadow a more substantial slowdown, an influential Fed official said on Monday.

New York Fed President William Dudley said the weak March jobs report released last Friday, as well as softer than expected manufacturing and retail sales in recent months, likely reflected "temporary factors to a significant degree," including the harsh winter in much of the United States.

But, in relatively dovish remarks to a business audience in Newark, New Jersey, he said the central bank will need to "determine whether the softness in the March labour market report evident on Friday foreshadows a more substantial slowing in the labour market than I currently anticipate."

US jobs growth, which has been a lone bright spot in the economy, slowed sharply last month. It reinforced the notion the Fed would delay an initial rate hike until later in 2015.

Dudley, a permanent voting member of the Fed's policy panel and a close ally of Fed Chair Janet Yellen, repeated that the hike would come once the labour market improves more and when policymakers are reasonably confident that low inflation will return to a 2 per cent goal.

"The timing of normalization will be data dependent and remains uncertain because the future evolution of the economy cannot be fully anticipated," he said, adding he expects the path of rate hikes to be "relatively shallow."

The first quarter was "quite weak" with only about one per cent GDP growth, but that should pick up to above 2 per cent for 2015 as a whole, he said. Unemployment, at 5.5 per cent, should drop to close to 5 per cent by year end, with wage growth picking up, he predicted.

But there are risks to this outlook, Mr Dudley added. Low oil prices and the drop in domestic industry activity will exert a "meaningful drag" on US economic activity, he said, while the high dollar will continue to pressure import prices.

REUTERS