* Further asset buying in 2013 hinges on employment,
* Pace of job growth doesn't materially change labor market
* Sandy, 'fiscal cliff' among the unknowns for economy, Fed
* Key central bank policy meeting Dec. 11-12
By Jonathan Spicer
NEW YORK, Nov 29 An influential Federal Reserve
official on Thursday signaled some support for further asset
purchases in the new year, arguing that recent improvement in
U.S. jobs growth is still not enough to materially change the
struggling labor market.
In a dovish speech only weeks before a key U.S. central bank
policy meeting, New York Fed President William Dudley said any
further purchases of Treasury securities in 2013 should hinge on
the outlook for employment and inflation.
"While job growth has picked up some recently, its pace has
been insufficient to materially change the labor market
picture," Dudley, a permanent voting member of the Fed's
monetary policy committee and a close ally of Chairman Ben
Bernanke, said at a Pace University forum.
Unemployment - at 7.9 percent last month - remains
"unacceptably high" with too many discouraged workers, the
The Fed meets on Dec. 11-12 to determine whether to extend
purchases of both Treasuries and mortgage-backed securities into
the new year to try to lower longer-term rates and boost the
U.S. economic recovery.
As it stands, the Fed is buying some $85 billion in
longer-term bonds per month. Part of that is a program known as
Operation Twist, in which the Fed buys $45 billion in
longer-term Treasuries and sells the same amount of shorter-term
While Twist expires at year end, most economists expect the
Fed to simply ramp up its $40-billion quantitative easing
program, dubbed QE3, to make up most if not all of the shortfall
in outright purchases.
In September, when it launched QE3, the Fed said the
bond-buying would continue until there is a substantial
improvement in the labor market outlook.
"I will be assessing the employment and inflation outlook in
order to determine whether we should continue Treasury purchases
into 2013," Dudley said.
'STAY THE COURSE'
The U.S. jobless rate has fallen from 8.3 percent in July,
and from 8.9 percent a year ago. The country has had a good few
months of job growth, and added a better-than-expected 171,000
new non-farm jobs last month.
Turning to inflation, Dudley said underlying inflation,
compensation trends, and longer-term expectations for prices are
"fully consistent" with the Fed's 2-percent inflation target.
"Let me reiterate that the Fed will promote maximum
employment and price stability to the greatest extent our tools
permit, and we will stay the course," Dudley said.
"When we achieve a stronger recovery in the context of price
stability, I'll view it as consistent with our goals and not a
reason to pull back on our policies prematurely."
The Fed has kept its key rate near zero since late 2008 to
help battle the recession, and expects to keep it there for at
least another two-and-a-half years. Answering questions from
university students, Dudley said the Fed would "absolutely"
remove that accommodation when "the time is right."
Illustrating the uncertainty facing both the economy and the
Fed, Dudley pointed to the effects of superstorm Sandy, as well
as the prospect of big tax rises and spending cuts set for the
new year, known as the fiscal cliff.
The storm, which hit New Jersey, New York and other nearby
states in late October, would likely shave 0.25 to 0.5 of a
percentage point from fourth-quarter U.S. gross domestic product
growth, Dudley estimated. The rebuilding will continue well into
next year, "providing for somewhat stronger growth than
otherwise would have been the case," he added.
Turning to the $600-billion fiscal cliff, Dudley warned
that, if it is not addressed, the economic contraction is likely
to be larger than normal because interest rates are so low.