Weak U.S. growth in first quarter is temporary: official

The weak economic growth in the first quarter was mainly attributed to temporary factors including severe cold weather, but growth should pick up in the coming quarters, a top Federal Reserve official said Monday.

"The March labor market report is another indicator that the first quarter is likely to be quite weak. Our current projection is that the economy will grow at about a 1-percent annual rate in the first quarter of 2015," William Dudley, president of the Federal Reserve Bank of New York said at an event in New Jersey.

Dudley was the first Fed official to publicly comment on the U.S. economy and monetary policy since the Labor Department released the March job report on Friday. The U.S. economy added only 126,000 jobs last month, falling short of economists' expectation for 245,000, the latest sign the labor market was slowing down, according to the report.

Dudley said a wide range of recent indicators, including retail sales, manufacturing production and orders, and single-family housing starts, all pointed to weak economic growth in the first quarter.

"Overall, I view these downside surprises as reflecting temporary factors to a significant degree," Dudley said, adding that "some of the recent softness is likely due to yet another harsh winter in the Northeast and the Midwest."

The Fed official warned that the strengthening U.S. dollar and the sharp drop in oil and gas investment could also become a drag on the U.S. economy.

But Dudley expected the economy to bounce back strongly in the coming quarters and grow about 2.7 percent for the whole year, supported by "continued solid fundamentals and accommodative financial conditions."

"An important element of this forecast is continued strength in household spending," Dudley argued. "This strength is supported by the restored health of household balance sheets, improved household income prospects and the benefit of significantly lower energy prices."

Dudley reiterated that the Fed would start to raise interest rates if the labor market improvement continues and the central bank is "reasonably confident" that inflation will move back to its target of 2 percent.

Dudley stressed the likely path of short-term interest rates is just as important as the timing of first rate hike, and the pace of subsequent rate increases depends mainly on two factors: "how the economy evolves and how financial market conditions respond to movements in the federal funds rate".

"If financial market conditions do not tighten much in response to higher short-term interest rates, we might have to move more quickly," he said.

The Fed has kept its benchmark short-term interest rate near zero since December 2008. Most economists expect the central bank to wait until September to begin raising interest rates. Endi