The market shouldn't be ruling out the possibility the Federal Reserve will hike interest rates again this year, William Dudley, president of the New York Fed, said on Monday.
"Market expectations, to my eye, derived from federal funds futures prices, which price in no more than one 25 basis-point rate hike through the end of 2017, … appear to be too complacent," he told a conference of central bankers and financial regulators on the Indonesian island of Bali.
Dudley said he expected the U.S. economy to grow around 2 percent annualized over the next 18 months, boosted by improved consumption.
"If the upcoming information validates my view of the outlook, then U.S. monetary policy will need to move at a faster pace than implied by futures prices to a more neutral posture as the labor market tightens further and U.S. inflation rises," Dudley said.
Additionally, Dudley noted that the market didn't appear to be giving much weight to the possibility that the economy could grow faster than expected.
"The risks to growth from Brexit and other international developments could fade away. If such events were to occur, this might necessitate an even faster pace of adjustment," he said.
"It's premature to rule out further monetary policy tightening this year. It depends on the data, broadly defined, and as we all know, that's not something one can predict with any great accuracy," he said.
Last week, the Federal Open Market Committee kept its overnight interest rate target in the 0.25 percent to 0.5 percent range, but noted that the labor market had "strengthened" and said other indicators were pointing to growth.
The Fed last hiked its overnight rate in December after keeping it anchored near zero for seven years.