There is a high chance that the Federal Reserve could raise U.S. interest rates this coming September, an influential Fed policymaker said in comments that boosted the dollar ahead of next week's signature meeting of world central bankers. William Dudley, New York’s Federal Reserve President, a permanent voter on rates and a close ally of Fed Chair Janet Yellen, gave the market-moving interview nine days before the annual meeting of top central bankers in Jackson Hole, Wyoming, a venue the Fed often uses to telegraph policy plans.
As reported by Reuters, Dudley announced that as the United States labor market tightens and as evidence builds of wage gains, "we're edging closer towards the point in time where it will be appropriate I think to raise interest rates further."
"It's possible" to hike rates at the next scheduled policy meeting on Sept. 20-21, he said on the Fox Business Network. "We'll have to see where the data falls." The U.S. central bank also needs to watch "the broad supports for the economy" and how inflation plays out "in coming months," he said.
Given the U.S. economy grew at only a 1-percent rate in the first half of the year, "we probably don't have a lot of monetary policy tightening to do over time," said Dudley.
"But the labor market is getting tighter and we're starting to see signs of wage gains starting to accelerate, so I think we're getting closer to that point in time when it will be appropriate to actually raise short-term rates again," he added.
Asked about inflation, which has remained low for years, Dudley said the question is whether there is enough economic growth to put pressure on resources that pushes up wages and, ultimately, inflation. "So far we seem to be on that trajectory and we'll have to see how it plays out in coming months."
Dudley said that while he sees nothing "particularly disturbing" in terms of risky financial bubbles, the bond market "looks stretched." The 10-year Treasury yield, at 1.57 percent, looks "pretty low" given the economic context, he added.