UPDATE 1-Fed’s Dudley sees no reason to reverse course

* Dudley says hopeful jobs growth will rise more rapidly

* Dudley: Must not be overly optimistic on growth outlook

* Dudley: Japan may dampen US growth somewhat in near-term
(Adds comments from speech, background)

By Kristina Cooke

SAN JUAN, Puerto Rico, April 1 (Reuters) – The U.S. economy
may add jobs more rapidly in coming months as the recovery
gathers steam, but that is not a reason for the Federal Reserve
to reverse course, a top Fed official said on Friday.

The U.S. central bank has kept interest rates near zero
since December 2008 and launched a $600 billion bond-purchase
program in November designed to further support the U.S.
economic recovery. At its last meeting, the Fed unanimously
voted to keep the bond purchase program, which is scheduled to
be completed in June, unchanged.

“We are still very far away from achieving our dual mandate
of maximum sustainable employment and price stability,” William
Dudley, president of the New York Federal Reserve Bank, told
the E-3 Summit of the Americas in San Juan, Puerto Rico.

“Faster progress towards these objectives would be very

The president of the New York Fed has a permanent voting
seat on the Fed’s policy-setting panel. Dudley’s recent views
have been “dovish” on inflation.

While highlighting some signs of optimism on the economy,
Dudley cautioned that progress could be slowed by the effects
from Japan’s devastating earthquake and tsunami and from high
oil prices due to unrest in the Middle East and North Africa.

He called employment data released earlier on Friday by the
U.S. government that showed a second straight month of solid
jobs gains “good news.” But he said the Fed would need to see
sustained strong employment growth to be sure that a “virtuous
circle” — in which rising demand generates more rapid income
and employment growth and leads to more consumer spending —
has become firmly established.

Along with the gains in hiring, the U.S. government
reported a decline in the jobless rate in March to a two-year
low of 8.8 percent. Graphic: http://r.reuters.com/kab88r

While there is still uncertainty about the speed of the
labor market recovery, Dudley said he is becoming more
optimistic and is “hopeful that jobs growth will increase more
rapidly in the coming months.”

He reiterated, however, that even if the economy were to
add 300,000 jobs per month, there would still likely be
considerable slack in the labor market at the end of 2012.

The U.S. Labor Department on Friday reported a gain of
216,000 jobs in March, the largest increase since May, a gain
that Dudley described as “notable.” The private sector
accounted for all the gains, with government employment falling
for a fifth straight month in March.

While pointing to improvement in household and financial
institutions’ balance sheets, Dudley warned that policymakers
must not be “overly optimistic” about the growth outlook.

“In recent weeks, we have experienced several shocks from
abroad that could have some impact on the economy’s forward
momentum, at least in the short-term,” Dudley said.

He said the earthquake and tsunami in Japan has led to
supply disruptions, which could “dampen growth somewhat in the
near-term.” He added that higher oil prices due to unrest in
the Middle East and North Africa are cutting into households’
spending power.

“Conditions in Japan, the Middle East and North Africa
remain uncertain and could worsen, with negative implications
for global economic growth,” he said.

U.S. housing activity also “remains unusually weak”, he

Commodity prices are likely to continue to put pressure on
inflation, he said, but as long as they level off around
current levels their effect “should be transitory,” he said.

He reiterated that it is important to ensure commodity
price pressures don’t cause the public’s expectations for
future inflation to become unanchored.

Puerto Rico is part of the New York Fed’s district.
(Reporting by Kristina Cooke; Editing by Leslie Adler)

UPDATE 1-Fed’s Dudley sees no reason to reverse course