U.S. central bankers are still likely to start raising interest rates this year if the labor market improves further, though the jobs outlook has become more uncertain, said William C. Dudley, president of the Federal Reserve Bank of New York.
“If the labor market continues to improve and inflation expectations remain well-anchored, then I would expect — in the absence of some dark cloud gathering over the growth outlook — to support a decision to begin normalizing monetary policy later this year,” Dudley, who has a permanent vote on the policy-setting Federal Open Market Committee, said in remarks prepared for a speech Friday in Minneapolis.
At the same time, he cautioned that “there remains some uncertainty about whether growth will be strong enough to lead to further improvement in the labor market.” He also stressed that interest rates are likely to rise gradually after liftoff.
Dudley spoke hours after the Labor Department reported that employers added more jobs to payrolls than forecast. The dollar strengthened as investors increased bets that the Fed will raise rates in September.
Fed Chair Janet Yellen and her colleagues are trying to determine if economic weakness at the start of the year is transitory or longer-lasting, as they consider the timing of their first rate rise since 2006. Fed officials next meet to discuss policy on June 16-17, and Yellen will hold a press conference after the gathering.
Employers added 280,000 workers to non-farm payrolls in May, beating the median forecast in a Bloomberg survey, figures from the Labor Department showed Friday in Washington.
Dudley acknowledged the numbers in his speech, adding that “there is still some ways to go.”