Federal Reserve Bank of New York President William Dudley predicts that the U.S. central bank will hike interest rates by year’s end.
“We are moving ever so slowly toward a point in time where we are going to tighten monetary policy,” Dudley told The Wall Street Journal.
“I think if the economy continues to evolve along the path we expect, I’d expect we’ll be raising interest rates relatively soon,” he said, without saying at which of the Federal Open Market Committee’s two remaining 2016 meetings the decision would be made.
The U.S. central bank lifted rates in December for the first time in nearly a decade and has stood pat since, as market volatility and overseas events were seen to threaten the U.S. economy, which slowed in the first half of the year. Still, most Fed officials still expect to raise rates again before year end.
“When the economy is growing just a bit above trend, the labor market’s tightening only slowly and inflation is below your 2% objective, there’s not a lot of urgency to tighten monetary policy quickly,” said Dudley, who serves as vice chairman of the FOMC.
“No one is talking about tightening monetary in a way to bring this expansion to a close. All we are talking about is potentially removing a little bit of the accommodation we have in place today, making monetary policy slightly less accommodative as we get closer to full employment,” said Dudley, echoing Fed Chair Janet Yellen's message last month after the central bank decided to leave interest rates unchanged at near a record low of 0.25-0.5 percent.
“The world is a very complex place, and the U.S. economy is very complicated,” said Dudley, a close ally of Yellen and a permanent voter on policy.
“The odds are the policy path will be gentle” for the central bank’s future rate actions, echoing the same sentiments he stressed in a series of media interviews following the release of minutes from the Fed’s September FOMC meeting that described officials’ decision then to hold off on a rate increase as “a close call.”
To be sure, Dudley told CNBC earlier in the week that U.S. inflation expectations seem to be "well-anchored" and that "slack" in labor markets is a reason behind the central bank's continuing easy monetary policy.
"The best thing that could happen for the U.S. economy (is) to grow at a moderate rate for the next five to 10 years and the unemployment rate to stay around 5 percent or lower," Dudley told CNBC, adding that was the Fed's goal.
"I think we're at a point where the economic expansion has plenty of room to run," he said.
The Fed, Dudley explained to Reuters, is aiming for a best-case scenario in which the economy grows at a "moderate rate over the next five to 10 years" while unemployment remains around 5 percent or a bit lower "and just have a very long-lived economic expansion."
Many well-respected financial gurus think it's high time the central bank raised rates once again.
For example, billionaire investor Wilbur Ross is urging the Fed to hike rates now so the central bank has some ammunition to fight back when a recession grips America within 18 months. “We at some point, probably within the next 18 months, are likely to go into a recession, especially — frankly — if you have Hillary Clinton elected and she increases taxes. But with or without that, we have a great risk of going into a recession,” Ross told Bloomberg Television.
“The Fed’s toolbox is basically empty. They need to replenish that toolbox in order to have a way to help, if and when we get into this recession that I see in the next 18 or so months,” he said.
“I believe that the dithering over it has created so much market uncertainty — both about interest rates and more importantly about the direction of the economy — that that dithering has done far more damage than 25 basis points would,” he said.
Ross said central bank officials are agonizing too much over such a relatively small move.
“If all that’s keeping our economy together is 25 basis points, we got nothing going on, anyway. So I think it’s ridiculous to make such a big to-do out of a one-quarter-of-one-percent potential increase,” he said.
(Newsmax wire services contributed to this report).
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