Federal Reserve Bank of New York President William Dudley said it isn’t unreasonable to expect the central bank to announce plans in September to start trimming its balance sheet and said he supports another interest-rate increase this year if the economy evolves as he expects.
“I would expect — I would be in favor of doing another rate hike later this year” if the economy holds up, Dudley said, speaking in an interview with the Associated Press.
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Expectations for a September announcement on when the Fed will begin to wind down its balance sheet weren’t “unreasonable,” he said. A political debate over the debt ceiling is unlikely to have a “big impact” on that timetable because the central bank could announce the start of the program but delay the actual date.
“The plan is out there. It’s been, I think, generally well-received, and fully anticipated,” Dudley said of the outline for drawing down the $4.5 trillion balance sheet. “In the last FOMC statement, we said that we expected this to happen relatively soon. So, I expect it to happen relatively soon.”
Dudley’s comments signal optimism at a time when inflation remains below the Fed’s goal even as the labor market continues to expand and the overall economy is chugging along. The New York Fed chief brushed aside recent weak price data as a trend that will probably reverse, suggesting officials might be willing to look past the slowdown even as it becomes more sustained.
“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,” Dudley said. “A pretty broad range of evidence that suggests the labor market is quite a bit tighter than it’s been in many years. Which is a good thing.”
Fed officials have been projecting one more rate increase in 2017, for a total of three this year, but weak price gains have made markets doubt that outlook. Investors are pricing in just a 29% chance of a rate increase by year-end.
Rising rates could be helpful for life insurers that offer long-term care insurance, long-term disability insurance, long-term annuity guarantees, or other products that are sensitive to changes in interest rates.