Federal Reserve Bank of New York President William Dudley said Thursday recent economic weakness has not changed his overall upbeat expectations for the economy this year and isn’t enough to alter the central bank’s plan to reduce its monthly bond purchases at coming policy meetings. 

Mr. Dudley, in a Wall Street Journal interview, also said the Fed’s 6.5% unemployment rate threshold for considering increases in short-term interest rates is “obsolete” and he would advocate scrapping it at the Fed’s next meeting March 18-19. 

“The threshold is pretty high” for changes in the current path of central bank bond buying, Mr. Dudley said.  For the Fed to deviate from its current steady pace of cuts in the bond buys, “the outlook would have to change in a material way relative to my expectations.” 

Mr. Dudley, who also serves as vice-chairman of the monetary policy setting Federal Open Market Committee, has been a strong supporter of aggressive Fed action to help support the economy.  He has grown more optimistic about the economic outlook in recent months and agreed in December to the central bank’s decision to reduce its monthly bond purchases by $10 billion to $75 billion. 

The Fed decided in January to trim the bond buys by another $10 billion to $65 billion.  Mr. Dudley and other Fed officials have indicated in recent public remarks and interviews they are likely to favor cutting the purchases by $10 billion again at the next meeting.  They have signaled that as long as the economy improves as they expect, they will end the program some time later this year. 

Fed officials have stressed their plan for winding down the bond-buying program is not on a preset course.  They could cut the purchases faster if economic growth picks up more than they expect, or they could slow down the reductions, or “tapering,” if the recovery stumbles. 

“If the economy decided it was going to grow at 5% or the economy decided it wasn’t going to grow at all, those would be the kind of changes in the outlook that I think would warrant changing the pace of taper,” Mr. Dudley said Thursday. 

Economic reports on job gains, retail spending, home sales and factory output have all been disappointingly weak since the start of the year, though many analysts caution the data likely have been distorted somewhat by cold weather in parts of the country.  Fed officials have greeted this swoon cautiously.  Fed Chairwoman Janet Yellen said in congressional testimony last week it was unclear how much of the softness was weather-related. 

Mr. Dudley is latest of several Fed officials who have said it would take more than weak data to change their plans to reduce the bond buying: It would take weak data that fundamentally changes their expectations for continued improvement in the labor market and overall economic growth. 

Mr. Dudley said that he still expects, “the economy should do better” this year relative to last, growing at around 3% this year. 

He said, however, it appears very likely that harsh weather slowed economic growth in the first quarter to under a 2% annual rate. 

Mr. Dudley also said he favors discarding the Fed’s so-called forward guidance that it will not consider raising interest rates until the unemployment rate falls to 6.5%.  The rate reached 6.6% in January and some analysts think it could hit 6.5% in the February employment report to be released Friday. 

The 6.5% marker “is already a little bit obsolete in the sense we are really close to it,”Mr.  Dudley said.  The level is “not really providing a lot of value in terms of our communications.” 

The meeting later this month would be a “a reasonable time to revamp statement to take out that 6.5% threshold,” he said.  The Fed has amended its guidance to say rates could stay near zero well past that point as long as inflation remains in check. 

A number of central bank officials have called for the threshold system to be set aside in favor of a broader, more qualitative method of assessing the health of the labor market.  How the Fed settles the issue is important, because central bankers believe that when they offer strong guidance about the likely future course of short-term rates, markets respond.  By assuring the public they plan to keep rates low for a long time, officials hope to encourage more spending, hiring and investment. 

It is an especially important issue now because the Fed wants to keep spurring stronger economic growth and bring down unemployment. 

Mr. Dudley affirmed that nothing’s changed when it comes to the short-term interest rate outlook.  He said “we have a long time to go before we have to think about raising short term interest rates.” 

Most Fed officials and many traders in futures markets expect the Fed to start raising short-term rates in mid- to late-2015.  He said, “I think the market expectations are appropriate based on what we know today.”  He added, “The Fed thinking, and market thinking, are, I think, closely aligned.” 

Watch the entire interview playback here (It begins around the 9:45 mark, final version coming soon). 

UPDATE: Most Fed officials expect to keep the overnight fed funds rate near zero percent until some time in 2015, an earlier version of this article incorrectly said the Fed might alter course in 2014. 

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