Fed senior official cautious about Q2 economic outlook

A senior official from the U.S. Federal Reserve said on Tuesday that she will take some time to assess the underlying economic strength in view of the soft data at the beginning of this year and the headwinds from the global economy, when considering the first interest rate hike.

"Given the softness in the data we have seen so far this year and some uncertainty about how much to attribute to temporary or statistical factors, I think there is value to watchful waiting while additional data help clarify the economy's underlying momentum in the face of the headwinds from abroad", Lael Brainard, governor of the Fed board, warned in a speech at the leading think-tank Center for Strategic and International Studies.

Brainard's remarks suggested she's open to a delay in the Fed's timetable for an interest rate hike this year.

She added that if labor market remains solid and inflation continues to improve, "liftoff could come before the end of the year".

Market investors widely see September or even later as the most likely time for a Fed rate increase. The central bank has kept the rate near zero since December 2008.

"The limited data in hand pertaining to the second quarter do not suggest a significant bounce-back in aggregate spending," she said, adding that the underlying momentum of the recovery has not" proceeded in fits and starts", referring to modest consumer spending, tepid residential investment, and decline in drilling investment as a result of low oil prices.

She also emphasized the strong dollar could continue to impose downward pressure on exports and the prices of imported goods.

The gross domestic product (GDP) shrank at an annual rate of 0.7 percent in the first quarter, marking the third quarterly contraction after the financial crisis ended in mid-2009.

As a result of a strong dollar, net exports contributed a negative 1.9 percentage points to the economic growth in the first quarter. Endi