By Jonathan Spicer
NEW YORK, May 30 (Reuters) - The underlying pattern of U.S. job growth still points upward, despite a slowdown in the last two months, the influential head of the New York Federal Reserve Bank said on Wednesday.
William Dudley, president of the regional Fed bank, told reporters he expects a "gradual decline" in the unemployment rate "stretching out over the next few years."
And he repeated his stance that, for now, no further policy action is needed by the Fed to stimulate the economy because he expects economic growth to gradually strengthen.
The U.S. jobless rate stood at 8.1 percent in April, a month when job growth slowed sharply, as it did in March. The May jobs report is due from the government on Friday.
Dudley and other Fed officials have warned that a series of scheduled tax increases and spending cuts at the end of this year could spell trouble for the slow economic recovery and the troubled labor market.
On Wednesday, Dudley said that if no action is taken on this so-called fiscal cliff, it would be a "huge shock" to the economy and lead to a tightening of gross domestic product growth of some 3 percent.
Another big potential headwind is the euro zone's debt crisis, which has intensified as capital has run thin at Spanish banks and political gridlock in Greece could result in that country's exit from the 17-member currency union.
The turmoil could hamper a U.S. economic recovery for a third straight year.
Dudley said U.S. banks' exposure to troubled countries on the periphery of the euro zone is "very modest," adding that domestic banks are in a much better position than in the past to withstand contagion from their European counterparts.
Still, he added, the United States is not immune if Europe's situation gets worse.
Since late 2008, the Fed has kept interest rates at rock bottom and bought some $2.3 trillion in long-term securities to kick-start a recovery after the worst recession in decades.
Dudley, an influential policymaker at the U.S. central bank who is often aligned with Chairman Ben Bernanke, largely repeated comments made last week when he outlined what would cause him to push for more policy accommodation by the Fed.
Dudley also repeated that he expects interest rates to stay near zero until at least late 2014.
"As long as the U.S. economy continues to grow sufficiently fast to cut into the nation's unused economic resources at a meaningful pace, I think benefits of further action are unlikely to exceed the costs," Dudley said.
"But if the economy were to slow so that we were no longer making material progress toward full employment, the downside risks to growth were to increase sharply, or if deflation risks were to climb materially, then the benefits of further accommodation would increase in my estimation, and this could tilt the balance toward additional easing."