NY Fed's Dudley/AP: Would Support Third Hike This Year

     WASHINGTON (MNI) - New York Federal Reserve Bank President William Dudley

said Monday he would support another rate hike in the fed funds rate if the

economy continues to grow as expected, and he hasn't changed his forecast very

much so far this year.

     "I think it depends on how the economic forecast evolves," Dudley said in

an interview with the Associated Press published online Monday. If the economy

evolves in line with his expectations, "I would be in favor of doing another

rate hike later this year."

     The median expectation of the Federal Open Market Committee as of the June

meeting was for one more 25 basis point rate increase this year, but still

markets see less than a 50% chance of another hike in 2017.

     Dudley, who as head of the New York Fed votes each year on the FOMC, said

his outlook "hasn't changed materially since the beginning of the year. He

expects continued growth around 2%, which is "slightly above trend," and

"sufficient to continue to tighten the labor market."

     However, even with above-trend growth and "gradually tightening" in the

labor market, inflation, is "somewhat below our objective," Dudley conceded.

But, he added, "we do expect as the labor market continues to tighten, to see

firmer wage gains and that will ultimately filter into inflation moving up

towards our 2% objective."

     As for fiscal policy, Dudley said he did not raise his growth forecast

after the election "because of the prospect of fiscal stimulus because I felt

that there was a lot of uncertainty about how big it would be, what its

composition would be, and when it would actually take effect."

     But he's always "viewed it as a risk to the forecast," Dudley said. "In

other words, an upside risk to the forecast, but I never put it into my baseline

forecast."

     While the FOMC has not made a decision about whether to start the reduction

of the Fed's balance sheet, Dudley said the expectations of market participants,

which is for a September start to tapering reinvestments, are not

"unreasonable."

     He continued to say the plan has been "generally well-received, and fully

anticipated," reiterating the FOMC standard line that he expects it will happen

"relatively soon."

--MNI Washington Bureau;tel: +1 202 371-2121; email: karen.mracek@marketnews.com

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