(Bloomberg) – The Federal Reserve is moving closer to raising interest rates at one of its next two meetings and the fact this message is getting through to financial markets is welcome news, said New York Fed President William Dudley.
"If I'm convinced that my own forecast is on track, then I think a tightening in the summer, the June-July time frame, is a reasonable expectation," Dudley told reporters Thursday in New York.
His remarks echoed sentiment in the minutes of the policy-setting Federal Open Market Committee's April 26-27 meeting, published Wednesday, which also showed concern among some policy makers over how out of step investors were to the Fed's thinking about the likely timing of rate increases.
Markets reacted to the minutes by moving up the probability of a rate hike at the FOMC meeting in June to around 30 percent compared with 10 percent before the minutes release, according to pricing in federal funds futures contracts. Dudley said he was "actually quite pleased to see that that probability has in fact moved up."
June FOMC
The minutes showed "most" members of the FOMC thought at the time of the April meeting that a rate increase in June would be appropriate if economic reports showed a rebound in second quarter growth following a slowdown in the first quarter. There were a "range of views" on whether that would happen.
Dudley, who has a permanent vote on the FOMC as the head of the New York Fed, said his own outlook was for "an economy that grows above trend, continues to put downward pressure on the unemployment rate and leads to further tightening in labor markets, and causes us to become more confident over time that inflation is going to return to our 2 percent objective."
He also said that risks to the outlook posed by events abroad had receded since earlier in the year, though the June 23 referendum in Britain on staying in the European Union or leaving was "another variable in the mix" to weigh at the June 14-15 FOMC meeting.
