Fed's Dudley Expects Another Rate Rise This Year

By Michael S. DerbyFeaturesDow Jones Newswires

Federal Reserve Bank of New York President William Dudley said another rate rise is still likely in 2017, in an interview published Monday.

When it comes to the monetary policy outlook, "I think it depends on how the economic forecast evolves," Mr. Dudley told the Associated Press. "If it evolves in line with my expectations, I would expect -- I would be in favor of doing another rate hike later this year."

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Mr. Dudley also said expectations the Fed will start cutting the size of its balance sheet in September are reasonable, adding, "I expect it to happen relatively soon."

Officials have raised the Fed's overnight target rate range twice this year, putting it in a range between 1% and 1.25%, and they have penciled in a third rate increase for 2017. However, market expectations for a third rate rise have declined recently amid soft inflation readings.

In the interview, Mr. Dudley said he expects the economy to continue along its 2% growth path, and that it would take time to get inflation back to the Fed's 2% target. He expressed confidence that robust labor-market conditions would help boost price pressures.

"I think that if the economy continues to grow above trend, and the labor market continues to tighten, I do think we'll get to the point where that will lead to higher wages and that will show up in terms of higher inflation," said Mr. Dudley, who also serves as vice chairman of the U.S. central bank's interest-rate-setting Federal Open Market Committee.

Mr. Dudley also was sanguine on financial stability issues, saying, "I'm not particularly concerned about where our asset prices are today for a couple of reasons. The main one is that I think that the asset prices are pretty consistent with what we're seeing in terms of the actual performance of the economy."

Mr. Dudley also said that Gary Cohn, economic adviser to President Donald Trump, was a "reasonable candidate" for Fed chairman. But he added, "I don't want to evaluate the various candidates for the Federal Reserve."

In July, Mr. Trump said he was considering renominating Janet Yellen as Fed chairwoman but also viewed Mr. Cohn as a top candidate.

Write to Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

August 14, 2017 15:03 ET (19:03 GMT)