The Federal Reserve will “probably” raise interest rates this year as the economy continues to grow, the vice chair of the central bank’s monetary policy committee said Monday.
There’s a “a very strong case” for raising rates as long as economic growth continues on its current trend, as most signs suggest it will, said William Dudley.
Dudley, the president of the Federal Reserve Bank of New York and the No. 2 official on the Fed’s rate-setting committee, made his comments in an interview and question-and-answer session hosted by the Wall Street Journal.
The Fed declined to raise its short-term interest rate at its September meeting, prolonging its policy of holding its rate target at zero. The statement issued at the meeting suggested that the reason for the delay was concern that slowing growth in China and elsewhere outside the U.S. could dent the domestic economy as well by slowing trade.
Dudley acknowledged that the risks posed by a slowdown in China worried him as well. But he clarified that as long as U.S. employment is expected to grow and U.S. inflation is expected to rise, threats from overseas would not dissuade the Fed from moving. “It’s not going to be about the international outlook per se,” he said.
He also declined to say what metrics he would be watching for confirmation that job growth will continue at its current pace and that inflation would rise to the Fed’s 2 percent target.
“Markets would love to have clarity about how the world is going to evolve,” he said. “But we are not going to have that clarity.”
Investors are watching the Fed’s decisions about raising rates closely because the overnight rates targeted by the Fed influence all other interest rates throughout the economy, including those on business loans and on consumer products, like credit cards or home loans.
Dudley, a former economist at the bank Goldman Sachs, also took on criticisms that the Fed’s monetary policy decisions are overly influenced by movements in stock markets or by banks.
“We’re certainly not targeting the stock market,” he stated. He explained that the Fed does have to pay attention to the stock market, though, for signs of problems that could affect the real economy and employment.
Nor does Dudley believe that financial markets are broadly showing signs of being in an unsustainable “bubble.” There are “some pockets of concern, but they seem to be very small,” he said, citing the fact that credit growth throughout the economy is slow.
