Fed's Dudley: Temporary Factors Holding Down Infl 'Fading'

--Fed Will Continue to Remove Monetary Accom Gradually

--Infl to Rise, Stabilize at 2% Over Medium Term

By Jean Yung

     WASHINGTON (MNI) - Temporary factors that have held down inflation this

year are "fading" and inflation will stabilize around 2% over the medium term,

New York Federal Reserve Bank President Bill Dudley said Monday. 

     That combined with a tighter labor market calls for gradual continued

tightening from the Fed, he said. 

     "With a firmer import price trend and the fading of effects from a number

of temporary, idiosyncratic factors, I expect inflation will rise and stabilize

around the FOMC's 2 percent objective over the medium term," he said in remarks

prepared for delivery at a community college in Syracuse, N.Y. 

     "In response, the Federal Reserve will likely continue to remove monetary

policy accommodation gradually." 

     Dudley appears to have updated his view on inflation from earlier this

month, when he said it was unclear if the low midyear inflation readings were

transitory or going to be more persistent. 

     "I think the next three to six months will give us good answers to that

question," he said in a CNBC interview ahead of the Federal Open Market

Committee meeting this month. He added that inflation below 2% and easier

financial conditions allows the Fed "to be more patient." 

     On Monday, Dudley sounded upbeat about the economy, saying damage wrought

by the recent hurricanes should be "relatively short-lived" and will "actually

serve to lift economic activity" as the recovery efforts get underway. In the

near term they may make interpreting economic data releases more difficult, he

said. 

     Meanwhile, low unemployment, rising business fixed investment and consumer

spending, a softer dollar and solid growth abroad should keep overall U.S.

growth at a slightly above-trend pace, he said. Over time, this should tighten

the labor market and "support a rise in wage growth." 

     Aside from his assessment of the economic outlook, Dudley spent most of his

speech Monday discussing workforce development and the skills gap in the labor

force. A new survey by the New York Fed bank found that "all community colleges

in the state offer some workforce development programming, and partnerships with

employers are the norm," which is encouraging news, he said.  

     But people still need help in getting placed into jobs after they are

training with the right skills, especially the unemployed, Dudley said. 

     There are also "a number of social and structural factors that work against

even the best workforce development efforts," Dudley said, including lack of

access to transportation, child care and a decline in geographic mobility. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

[TOPICS: MMUFE$,M$U$$$]