Investing.com - The president of the Federal Reserve (Fed) Bank of New York William Dudley said Monday that the U.S. economy was expected to grow at a pace above its sustainable long-term rate which in turn would support a gradual tightening of monetary policy and that the pace may be quicker than originally anticipated.
“Assuming the economy stays on this trajectory, I would favor making monetary policy somewhat less accommodative over time by gradually pushing up the level of short-term interest rates,” he said in a speech delivered Monday at the ABNY Breakfast in New York City.
Dudley pointed to what he identified as a post-election tightening in financial market conditions and noted that “market participants now anticipate that fiscal policy will turn more expansionary and that the FOMC will likely respond by tightening monetary policy a bit more quickly than previously anticipated.”
“Assuming this expectation is realized, the recent modest tightening in financial market conditions seems broadly appropriate,” he added.
However, in a clear reference to President-elect Donald Trump’s taking of office in January and the recent market reaction, Dudley warned that there was still "considerable uncertainty" about how fiscal policy will evolve over the next few years.
“At this juncture, it is premature to reach firm conclusions about what will likely occur,” he said.
“As we get greater clarity over the coming year, I will update my assessment of the economic outlook and, with that, my views about the appropriate stance of monetary policy,” he added.
Furthermore, Dudley highlighted the need for Congress and the incoming Administration to implement fiscal measures in order to support the economy.
“Monetary policy could use an assist from fiscal policy,” he stated.
“It is important that monetary policy and fiscal policy work together and not at cross purposes to be able to bolster the economy when it needs support,” Dudley concluded.
Besides the fact that Dudley has a vote on policy decisions, he is also generally considered to be the policymaker most closely aligned with Fed chair Janet Yellen’s views.
Even before Dudley’s speech, markets had fully priced in a 25 basis point hike at the December 13-14 meeting, according to Investing.com’s Fed Rate Monitor Tool.
Looking ahead to 2017, Fed fund futures put the chance of another 25 basis point hike in June at 55.5%.
Still on tap for Monday, Chicago Fed president Charles Evans was scheduled to speak at The Executives' Club of Chicago CEO Breakfast at 9:11AM ET (14:11GMT). Though Evans does not have a vote on policy decisions this year, he will be entering the rotation in 2017.
Additionally, St. Louis Fed chief and voting member James Bullard will speak on the U.S. economy and monetary policy at 2:05PM ET (19:05GMT).