Dudley joins chorus of Fed officials seeing rate hikes soon

Thu May 19, 2016 2:00pm EDT
 
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By Lindsay Dunsmuir and Richard Leong

NEW YORK (Reuters) - The U.S. economy could be strong enough to warrant an interest rate increase in June or July, New York Federal Reserve President William Dudley said on Thursday, cementing Wall Street's view that the Fed will tighten policy soon.

"We are on track to satisfy a lot of the conditions" for a rate increase, Dudley said. He added, though, that a key factor arguing for the Fed biding its time a little was the potential for market turmoil around Britain’s vote in late June about whether to leave the European Union.

Dudley's comments reinforced the drum beat from within the Fed in recent days that rate increases are coming soon, with a range of policymakers with normally varying views on monetary policy now stating the next policy meeting in June is firmly on the table.

Minutes of the Fed's April meeting, released on Wednesday, suggested most policymakers felt a rate increase could be needed in June, with officials saying they first wanted to see signs the economy was still strengthening.

The New York Fed chief said on Thursday he was "quite pleased" investors had increased bets on the likelihood that rate increases will come soon, echoing concerns expressed in the minutes by policymakers who do not want to catch Wall Street by surprise when they raise borrowing costs.

"If I am convinced that my own forecast is sort of on track, then I think a tightening in the summer, the June-July time frame is a reasonable expectation," said Dudley, a permanent voting member of the Fed's rate-setting committee.

Since the minutes were released, investors have shifted their bets on the next rate increase to July from September, according to CME Group calculations based on prices for Fed funds futures contracts. Those prices currently imply investors see a 30 percent chance rates will rise in June, up from 19 percent before the minutes were released.

The dollar .DXY extended gains against other currencies following Dudley's comments and U.S. stock prices fell further, suggesting investors continued to bet rate increases were around the corner.   Continued...

 
William Dudley, President and CEO of the Federal Reserve Bank of New York, addresses the Economic Club of New York at a luncheon in the Manhattan borough of New York City, November 12, 2015. REUTERS/Mike Segar