By Claudia Hirsch

NEW PALTZ, NY (MNI) – New York Federal Reserve President William
Dudley Thursday reiterated that headline inflation is higher than he and
other monetary policymakers would like and is likely to firm further in
coming months, but that these levels are likely to subside.

“The rise in commodity prices over the past year probably will push
up headline inflation further in the next few months,” Dudley told a
morning audience at the State University of New York at New Paltz, his
opening remarks in a two-day tour of the Hudson Valley.

“I would expect headline inflation to move back to a more
mandate-consistent rate,” he said, and pointed to a recent New York
Fed-sponsored survey that found “no evidence to suggest that a
wage-price inflation spiral is getting under way.”

Said Dudley: “At this point, measures of inflation expectations
overall remain stable.”

Also likely transient, he said, was the “somewhat softer than
anticipated” showing in first-quarter U.S. gross domestic product,
driven by falling construction activity, shrinking government spending
and slower oil-price-tinged consumption.

“The weakness of real output growth in the first quarter probably
will prove temporary,” he said. Manufacturing signals “generally
continue to signal growth, suggesting that production should soon return
to a more robust level,” he said, and added that robust foreign demand
is U.S. export-supportive.

Downside risks to growth include lofty oil and commodity prices
that might “constrain overall spending more than I anticipate,”
declining home prices crimping consumer spending more than expected, and
“aggressive near-term government spending cuts or tax increases,” Dudley
said.

He pointed to improving employment growth, as evidenced by the
latest nationwide report, for April, which pushed the monthly
job-creation average to 233,000 over the past three months.

“A particularly encouraging sign is the rapid growth of
manufacturing jobs over the past year and the recent broadening strength
in services employment,” Dudley said. While he said he is “hopeful” that
job growth will strengthen further, he cautioned that even an average of
300,000 jobs monthly would still leave “considerable labor market slack
at the end of 2012.”

In all, however, “unemployment remains unacceptably high,” he said.

** Market News International **

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