By Jonathan Spicer
NEW YORK (Reuters) - An influential Federal Reserve official said he modestly lowered his expectations for inflation in coming months, but added greater clarity on the U.S. jobs market and the European crisis was required before taking a firmer stance on the health of the U.S. economy.
New York Fed President William Dudley, a close ally of Chairman Ben Bernanke and a key barometer of the thinking inside the U.S. central bank, said on Friday employment growth has "slowed considerably of late" as the economy has lost momentum.
Dudley, a policy dove, referenced the Fed's decision last week to boost monetary stimulus to the stalled U.S. recovery, but offered no fresh insight on what spurred policymakers to take that particular step, nor whether more easing might be needed.
"Although some of the current uncertainties will take time to resolve, I can imagine material data on a number of dimensions could become available in the coming weeks and months that could lead me to adjust my forecast further," Dudley said in prepared remarks to the Puerto Rico Chamber of Commerce.
"I will be paying particularly close attention to whether domestic momentum and hiring picks up now that the pay-back for the mild winter is over, and whether financial conditions, which are heavily influenced at present by developments in Europe, ease or tighten further," he was to say via video link.
Three consecutive months of disappointing U.S. jobs growth and the simmering euro zone debt crisis led the Fed to extend by six months and $267 billion a bond maturity-extension program called Operation Twist.
Also last week, the Fed slashed its expectations for GDP growth over the next two years and trimmed an inflation prediction, while raising expectations for the unemployment rate, which in May stood at 8.2 percent.
But it decided not to take the more aggressive step of launching another bond-buying program, known as QE3.
Dudley voted for the Operation Twist extension despite having said on May 30 that, for now, additional Fed stimulus was not warranted. As head of the important New York regional Fed bank, he has a permanent vote on Fed policy.
Giving more detail than in a speech a month ago, and citing falling gasoline prices, Dudley on Friday said he expects inflation to decline "a bit in coming months, falling somewhat further below our 2-percent objective."
The recovery has been disappointing, he added. "Despite a monetary policy that has been extraordinarily accommodative by historical standards, the economy has grown only about 2 percent over the past year. After a brighter start to the year, economic momentum has slowed in the last few months," Dudley said.
(Reporting by Jonathan Spicer; Editing by Theodore d'Afflisio)
