* But forecasts can often be wrong, Dudley adds
* Fed's Williams sees return to normal economy in two years
* Fed's Plosser worried Fed forward guidance too 'passive'
(Adds comments from Fed's Williams, Plosser, links to related
By Ann Saphir
June 24 The U.S. Federal Reserve can reasonably
wait to raise interest rates until mid-2015 without risking an
undesirable rise in inflation, an influential Fed policymaker
said on Tuesday.
"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 [ID: nL2N0P519Q]. "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
"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."
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." For more, please see [ID:
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)