Federal Reserve Bank of New York President William C. Dudley said the central bank will “probably” raise interest rates later this year despite uncertainties over global growth.
“I think that the economy is doing pretty well,” Dudley said at an event Monday in New York. He said he expected growth in the second half will be “a little bit weaker” than in the first half.
Dudley said his expectation on timing was “not calendar guidance. It depends on the data. That’s based on my view of how the economy is likely to evolve.”
His remarks are aligned with the views of Fed Chair Janet Yellen, who said Sept. 24 she also felt it likely the Fed would increase rates this year for the first time in almost a decade. The Federal Open Market Committee decided Sept. 17 not to hike rates, citing worries over the slowdown in China and other international concerns.
Dudley said China is the largest factor among international developments the Fed is watching, though he stressed external forces mattered only to the extent they influenced the central bank’s progress on its goals for 2 percent inflation and maximum employment.
“It’s really about the implications of China’s growth,” he said.
China’s slowdown has helped push down global commodity prices, Dudley said. That, along with a strengthening of the U.S. dollar, has contributed downward pressure to inflation in the U.S., he said.
Unemployment in the U.S. has fallen to its lowest level in more than seven years, making it harder for the Fed to justify interest rates near zero. Inflation, however, has remained well below the Fed’s target. It was 0.3 percent in the 12 months through August, as measured by the Fed’s preferred gauge of price movements.
Dudley said inflation probably would move back toward the target over time, and that 2 percent was “the right target.”
He said the inflation goal was not a ceiling for policy makers and he wouldn’t be disturbed if inflation went over the target, before adding, “I don’t think we’re going to deliberately try to overshoot 2 percent.”