In an interview on FOX Business Network’s (FBN) Mornings with Maria  (weekdays, 6a-9a/ET), Senior Washington Correspondent Peter Barnes spoke with New York Federal Reserve President William Dudley about interest rates. When asked whether he thinks September is a possibility to raise interest rates Dudley said, “Yeah, I think it’s possible. I mean I think we’ll have to see how the data falls and where we are in terms of broad supports for the economy.” Dudley went on to say, “I think we’re getting closer to the day where we’re going to have to snug up interest rates a little bit. And that’s good news.”

William Dudley
Image source: FBN Video Screenshot

William Dudley on whether he sees a rate hike in September:

“Yeah I think it’s possible. I mean I think we’ll have to see how the data falls and where we are in terms of broad supports for the economy. I think the economy is in OK shape. I mean I think that consumption is doing quite well. Real income gains are pretty sturdy. Job gains are pretty sturdy. Against that you have some weakness in business fixed investment. Perhaps the election uncertainty may exacerbate that weakness in business fixed investment for a little while.  But in general the economy I think is going to be better in the second half than it was in the first half. I think the labor market is going to continue to tighten. And in that environment I think we’re getting closer to the day where we’re going to have to snug up interest rates a little bit. And that’s good news. I mean the Fed, if we get to the point where we want to raise interest rates again this year; I think that would be good news.”

William Dudley on a possibility of a rate hike since his speech last month:

“Well I don’t think my views have changed very much. I mean I think we’re looking for growth in the second half of the year that will be stronger than the first half. So some acceleration in the growth outlook. The labor market continues to generate reasonable job gains with 190,000 the last 3 months. So I think we’re edging closer towards you know the point in time where it will be appropriate I think to raise interest rates further. As I said in the speech that I gave last month, you know, there are reasons to think that monetary policy isn’t particularly stimulative right now. You can sort of judge that by the fact that we only grew at a 1% annual rate in the first half of the year. So we probably don’t have a lot of monetary policy tightening’s to actually do over time. But the, you know, the labor market is getting tighter. We’re starting to see signs of wage gains starting to accelerate. And so I think we’re getting closer to that point in time where it will be appropriate to actually raise short-term rates again.”

William Dudley on inflation:

“We’re working closer in the sense that headline inflation is drifting up a little bit because the earlier declines from energy prices are dropping out of the year-over-year calculation. But core inflation which takes out energy because it’s a more reliable indicator of the underlying trend of inflation has been pretty flat over recent months. So in my mind the inflation outlook really hasn’t changed very much.  The key question is are we going to get enough growth to put pressure on resources, pushing up wages and gradually pushing up inflation to 2%? So far we seem to be on that trajectory. I want to see how it plays out in coming months.”

William Dudley on investors getting too complacent about the possibility of rate hikes in 2016:

“Oh absolutely. I mean you look at the futures markets for the federal funds rate which is the rate that we target, it has basically one rate hike priced in through the end of 2017. I find that you know too low. I think the market is complacent about the need for gradually snugging up short-term interest rates over the next, you know, year or so.”