Fed’s Dudley says labor market slowdown would tilt to easing

May 24 (Bloomberg) -- Federal Reserve Bank of New York President William C. Dudley said he would favor additional easing if the labor market falters or risks to growth were to rise substantially.

“If the economy were to slow so that we were no longer making material progress toward full employment, the downside risks to growth were to increase sharply, or if deflation risks were to climb materially, then the benefits of further accommodation would increase in my estimation and this could tilt the balance toward additional easing,” Dudley said in a speech today in New York.

Dudley’s comments reinforce the view expressed at the April meeting of the Federal Open Market Committee, when several policy makers said a loss of growth momentum or increased risks to their outlook could warrant additional action, according to minutes of the gathering. Policy makers have relied on communications about their expectations for the path of interest rates to provide additional stimulus after cutting their benchmark rate to near zero in December 2008.

The FOMC said last month it anticipated keeping its benchmark rate near zero until at least late 2014, reiterating a plan announced in January.

The number of Americans filing first-time claims for unemployment insurance payments declined last week, pointing to gradual improvement in the labor market. Applications for jobless benefits decreased by 2,000 to 370,000 in the week ended May 19 from a revised 372,000 the prior week, Labor Department figures showed today. The initial claims matched the median estimate in a Bloomberg News survey of economists.

Job Growth

A Labor Department report on June 1 may show job growth picked up this month. Employers probably added 148,000 workers to payrolls in May, according to the median estimate in a Bloomberg News survey of economists, compared with a gain of 115,000 in April that was the smallest in six months.

Dudley endorsed the current FOMC policy, including the 2014 interest rate plan, while saying it could change in response to economic data that differed from forecasts.

“As long as the U.S. economy continues to grow sufficiently fast to cut into the nation’s unused economic resources at a meaningful pace, I think the benefits from further action are unlikely to exceed the costs,” Dudley said.

If more easing were needed, the Fed could further expand its balance sheet with another asset-purchase program or extend the duration of its Treasury portfolio, Dudley said.

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