Some of the growth in sales and job creation in the first three months of the year may have been due to the mild winter pulling forward hiring and economic activity, Dudley said.
More from the speech:
Regardless of the importance of the mild winter in distorting the recent economic data, real economic activity has yet to be strong enough on a sustained basis to make a big dent in the overall amount of slack in the U.S. economy. While growth was stronger in the fourth quarter, most of it was due to inventory accumulation. Growth of final sales remained quite weak. Historically, quarters in which inventory investment makes significant growth contributions are typically followed by quarters in which that growth contribution is modest or even negative. That appears to be what is shaping up for the first quarter of this year.
Based on available data, our current expectations are that real GDP will expand at around a 2 ¼ percent annual rate during the first quarter of 2012. Even with the robust increase of light vehicle sales, overall consumer spending in the first quarter appears to be rising at a similar moderate rate. At the same time, real disposable income has been flat over the past three months, and the large increase of gasoline prices is likely further sapping consumers’ real purchasing power. And growth of business investment spending, which softened in the fourth quarter of 2011, may have been even a little softer in the first quarter of this year.
To put the recent pace of growth into perspective, we believe that the economy’s long-run sustainable growth rate—what economists call the potential growth rate—is around a 2 ¼ percent annual rate. We need sustained growth above that rate to absorb the still substantial amount of unused productive capacity. Thus, our recent growth rates are barely keeping up with our potential.
Dudley is considered to be a "dove" on monetary policy, meaning he tends to support an easier policy than "hawks" worried about inflation.
His speech emphasized the need to keep a close eye on new economic data. This has become something of a theme coming out of the Fed lately: new policy will be data driven. That means, on the one hand, that the Fed is unlikely to unveil a new round of quantitative easing unless economic data indicates the economy is slowing. On the other hand, it should make predicting Fed action easier. This seems to be part of the Fed's attempt to make its actions more transparent to the market.
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