The Federal Reserve's Open Market Committee that decides monetary policy said last week it would keep its federal fund rate at the historically low rate of zero to 0.25 percent and continue with its $85 billion per month quantitative easing program.
The Fed has also said it would consider a policy shift when the unemployment rate has dropped to 6.5 percent. As it has dropped from 8.1 percent to 7.3 percent since the Fed announced that marker, Fed Chairman Ben Bernanke and now Dudley have said 6.5 percent is not the only number policy makers are considering.
A 6.5 percent unemployment rate "is not a magic number," Bernanke said last week.
Speaking at the Fordham University School of Business on Monday, Dudley said he would change his vote for a shift in policy only if the labor market met two conditions.
"I have two tests that must be passed," Dudley said. "One: Evidence that the labor market has shown improvement and Two: Information about the economy's forward momentum that makes me confident that labor market improvements will continue in the future."
"So far, I think we have made progress with respect to these metrics, but have not yet achieved success," Dudley said.
"Moreover, because the 6.5 percent unemployment rate is a threshold, and not a trigger, depending on the economic circumstances, we might wait a long time after we breach the threshold before we begin to raise our federal funds rate target," he said.
The "decline in the unemployment rate overstates the degree of improvement.," he said, pointing to other factors. "Other metrics ... collectively indicate a much more modest improvement in labor market conditions compared to that suggested by the decline in the unemployment rate," he said. "In particular, it is still hard for those who are unemployed to find jobs."
The decision to shift policy would also need to consider the economy's momentum, he said. At this point, Dudley expects the pace of growth to pick up in 2014. In the meantime, "In my view, the economy still needs the support of a very accommodative monetary policy," he said.