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Fed's Dudley: Fed should prioritize raising rates rather than shrinking balance sheet

New York Federal Reserve President William Dudley said on Tuesday he expects inflation to drift higher over the remainder of the year, though he added that the U.S. central bank's 2 percent inflation target is not a ceiling.

Speaking at an event in New York, Dudley said that while headwinds are growing less severe, the trajectory of economic growth continues to disappoint.

Dudley's prepared remarks supported his previous views that U.S. monetary policy will remain accommodative until stronger signs of economic growth are present.

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"Some of the factors holding down inflation...were one-offs and are now dropping out of the year-over-year figures," Dudley said at a lunch hosted by the New York Association for Business Economics. "In some other areas, such as owners' equivalent rent, price pressures look likely to firm somewhat."

Dudley said, however, that he did not expect inflation to rise sharply.

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