(Reuters) - The U.S. economic outlook would have to change substantially for the Federal Reserve to alter the pace at which it is winding down asset purchases, a top U.S. central banker said on Thursday.
While growth is likely to quicken this year, the threshold for changing course on stimulus withdrawal is "pretty high," said New York Fed President William Dudley during an event hosted by The Wall Street Journal.
"The outlook would have to change in a material way relative to my expectation," he added.
The Fed this year started winding down five years' worth of unprecedented accommodative policies meant to fight the 2007-09 recession and foster a stronger recovery. That means the central bank will eventually stop buying trillions of dollars worth of bonds and holding overnight interest rates at zero.
Dudley acknowledged that recent fierce winter weather in parts of the country have depressed activity in early 2014, but said those effects will be both hard to gauge and transitory.
"The weather is going to make reading the data over the near term a little more difficult," he said.
"The first quarter will probably be less than 2 percent for annualized growth," Dudley said. In the spring, "we'll see some of these weather effects dissipate."
Still, he said the economy would likely be better this year than last, "on a 3 percent type of growth trajectory, which should be enough to generate payroll gains that lead to continued gradual improvement in the labor market."
But he was quick to add that headwinds are likely to persist for some time.
"We have a long time to go before we actually have to think about raising short-term rates in my opinion," he added.
According to Fed futures contracts, the first rate hike is not likely until the second half of 2015, with a 63 percent chance that it comes at the Fed's July 2015 meeting.
Dudley called current market expectations "appropriate" based on what is known about the economy today.
Threshold for changing course on tapering is ‘pretty high’: Fed’s Dudley
March 6, 2014 by Leave a Comment