Fed's Dudley warns against overly cautious approach on rates hike
William Dudley, the president of the New York Federal Reserve, said that longer-run value of the federal funds rate is 3.5%, way below its historical level of 4.5%.
The longer-run value is important as it is where the funds rate would encourage growth without weighing on inflation and estimates of the rate are closely monitored as they can offer an indication to the eventual goal of Fed rate hikes.
Speaking at a conference in New York on Friday, Dudley said he agreed with those suggesting the Fed should adopt a cautious stance in terms of hiking rates, with short-term rates more likely to rise gradually.
However, he added that a slow rise in interest rates was not enough to curb risks altogether, adding that an overly cautious approach from the Fed could lead to unwanted repercussions.
The New York Fed's president said slower growth in labour supply and sluggish output growth weighed on the real potential gross domestic product expansion rate over the medium term, negatively affecting the longer-run value of the Fed funds rate.