NY Fed's Dudley: Economy not strong enough (by Steve Goldstein)

WASHINGTON (MarketWatch) -- The economy isn't strong enough on a sustained basis to make a big dent in the unemployment rate, said William Dudley, the president of the New York Fed, in a speech in Syracuse. He anticipated first-quarter gross domestic product growth of 2.25%, which is around the economy's potential growth 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 said. He said the economy still faces significant headwinds, notably the run-up in gasoline prices, the ongoing weakness of the housing sector, and fiscal drag at the federal and state levels. On inflation, he expects that the core rate has peaked and will decline later this year and that inflation expectations are well anchored. Dudley, the vice chairman of the rate-setting Federal Open Market Committee, didn't address his views of buying more assets or on interest rates in his prepared comments.