“It still is premature to begin to raise interest rates,” Dudley said today in a speech in Troy, New York. “The labor market still has too much slack and the inflation rate is too low.”
Dudley said a strengthening dollar, weak foreign demand and strong domestic energy production are all holding down inflation, which remains below the Fed’s 2 percent target. “There still is a significant underutilization of labor market resources,” he said.
Dudley’s comments were his first since a report last week showed the unemployment rate unexpectedly fell to 5.9 percent and the economy added more jobs than forecast in September. The FOMC last month retained its pledge to keep rates low for a “considerable time” after it concludes its two-year asset purchase program this month.
“The consensus view is that lift-off will take place around the middle of next year. That seems like a reasonable view to me,” Dudley said.
Most Fed officials predict the Fed will raise the benchmark interest rate above zero sometime in 2015, according to forecasts published Sept. 17. The increase would be the first since 2006.
Officials see growth of 2.6 percent to 3 percent next year, according to central tendency estimates, which omit the three highest and three lowest forecasts. That should help push unemployment down to 5.4 percent to 5.6 percent. They also forecast inflation to remain below their 2 percent goal.
Dudley’s speech came after the International Monetary Fund today cut its forecasts for global growth next year and warned about the risks of rising geopolitical tensions and a financial- market correction as stocks reach “frothy” levels.
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