Improving US economy not enough for Fed to back off says official

NEW YORK (REUTERS) - The US economy's "reasonably favorable" prospects are not yet good enough for the Federal Reserve to stop providing highly accommodative monetary policy, an influential US central banker said on Friday.

New York Fed President William Dudley outlined some bright spots in the long US recovery from recession. But he stressed that the labor market is still hobbled, saying in a speech he would like to see faster economic growth and more rapid progress in lowering unemployment and raising inflation.

Dudley did not comment specifically on the Fed's twin policies of bond-buying and near-zero interest rates. And while his comments on the economy were relatively upbeat, his dovish comments on policy reinforces the notion that the Fed is nowhere near ready to tighten.

A key decision-maker alongside Fed Chair Janet Yellen, Dudley predicted sustained U.S. growth above 2.25 per cent, enough to boost the labor market. But he warned of "substantial underutilization" of both labor and capital resources.

"This implies, in turn, that the current, highly-accommodative stance of monetary policy will remain appropriate for a considerable time to come," Dudley said in prepared remarks to students at Brooklyn College.

The US unemployment rate rose to 6.7 per cent last month from 6.6 per cent in January, according to fresh data from the government on Friday that also showed better-than-expected jobs growth last month.

The Fed, tasked with obtaining maximum sustainable employment in the world's largest economy, is buying US$65 billion (S$82.3 billion) in bonds each month and has promised to keep rates low for a while, probably until some time next year.