Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

Dudley joins chorus of Fed officials seeing rate hikes soon

Published 05/19/2016, 02:01 PM
Updated 05/19/2016, 02:01 PM
© Reuters. Dudley addresses the Economic Club of New York at a luncheon in the Manhattan borough of New York City

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 (NASDAQ:CME) 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.

The Fed raised interest rates last December after keeping them near zero for seven years to help the economy recover from a steep recession.

Dudley pointed out that the Fed's next meeting will be a week before Britain votes on whether to leave the European Union.

Opinion polls are giving conflicting messages on how Britons will vote on June 23. This week, an ORB telephone poll showed a 15 percentage point lead for the "In" campaign, while an online poll conducted by TNS showed the "Out" campaign with a three-point lead.

The event has the potential to create financial market turmoil which could make the Fed more cautious.

"We'll have to think about that in terms of... whether it makes sense to go in June or wait a little bit later," Dudley said.

In the United States the jobless rate, currently at 5 percent, is near what most economists consider full employment. Recent data including retail sales, housing starts and industrial production painted an upbeat picture at the start of the second quarter. New jobless claims fell last week, the Labor Department said on Thursday.

However, another report showed factory activity contracting in the mid-Atlantic region in May, hurt by the sluggish global economy which has made the Fed more cautious about lifting rates.

Fed officials have expressed concern in recent weeks and months that the economy is stuck in a state where even historically low rates of growth can fuel inflation.

The Fed's No. 2 official said on Thursday the country requires faster potential economic growth to lift the level the Fed's target rate needs to keep the economy at full employment with stable inflation.

"What we need most, now that we are near full employment and approaching our target inflation rate, is faster potential growth," Federal Reserve Vice Chairman Stanley Fischer told an economics conference in New York.

© Reuters. Dudley addresses the Economic Club of New York at a luncheon in the Manhattan borough of New York City

Fischer did not comment on the likelihood the Fed will raise rates again in June.

Latest comments

https://www.betfair.com/exchange/plus/#/financial-bets/market/1.123108299. . fed wont hike in interest rates in june as betfair is giving 3 for every 1 you bet on interest rate hike in june
guys fed may rise rates in october so done go on their words
When everything is going good you come and say rate hike next month and make equity markets worse and market are not good in next month you say rate hike unlikely.this keeps on going on.I would prefer to announce when you hiking rate by saying nxt month you give warning to overall market its like playing game puppets in your hand.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.