NEW YORK (Reuters) - The U.S. economy will regain some momentum in the second half of 2011 but the pace of growth will remain "painfully slow" for many people, New York Federal Reserve Bank President Dudley said on Tuesday.
The Fed also noted that financial conditions are improving gradually and the labor market is stronger than a year ago, but that rising food and energy prices and a sluggish housing market remain downside risks to the economy.
In a speech to business leaders, the governor said, "I expect the remove background image recovery to gain momentum in the second half of the year enough to sustain the gradual recovery trend," but added, "But the pace of recovery is painfully slow for many of the unemployed and underemployed."
"The Fed still has a long way to go to meet its dual mandate of full employment and price stability," he said, adding that while inflation expectations are rising only modestly for items other than food and energy, it is essential for the Federal Reserve to keep inflation expectations in check.
Regarding the U.S. fiscal problem, he pointed out that implementing "aggressive spending cuts or tax increases in the short term" to reduce the fiscal deficit could slow growth in the short term.
"However, there is a strong need to develop a credible long-term fiscal consolidation plan, and I want to emphasize that this will also be beneficial for the economy," he added.