The latest employment report showed nonfarm payrolls increased by 156,000 in September and the unemployment rate ticked up to 5 percent as more people began looking for work.
"The best thing that could happen for the U.S. economy (is) to grow at a moderate rate for the next five to 10 years and the unemployment rate to stay around 5 percent or lower," Dudley said, adding that was the Fed's goal.
"I think we're at a point where the economic expansion has plenty of room to run," he said.
Treasury yields held higher, and the U.S. dollar index extended slight gains during Dudley's remarks. The 10-year Treasury yield briefly hit 1.80 percent, its highest since early June. The two-year Treasury yield was near 0.86 percent as of 9:12 a.m., ET.
Dudley also said that if the Fed could go back to the end of the financial crisis and redo its quantitative easing, or asset-purchase program, that "we would have gotten to a more aggressive posture sooner than we did."
He also said that the Fed "takes the world as it is and we don't conduct monetary policy with any eye to political outcomes."
The Fed's next meeting is set for Nov. 1 and 2, just days before the U.S. presidential election. Most analysts don't expect the central bank to raise rates until December.
Kansas City Fed President Esther George is also scheduled to speak ahead of the afternoon's release of the September meeting minutes of the Federal Open Market Committee. George was one of three dissenters who favored raising interest rates at that meeting, and the minutes will be scrutinized to see how close other policymakers are to supporting a rate hike later this year and beyond.
Earlier this week, Chicago Fed President Charles Evans said there are benefits to the Fed overshooting its 2 percent inflation target. Last week Evans said he would be "fine" with a rate hike by the end of the year, most likely in December. He will become a voting member of the Fed next year.
Fed Chair Janet Yellen is due to speak this Friday on "macroeconomic research after the crisis."
— Reuters and CNBC's Elizabeth Schulze contributed to this report.
Correction: This article has been updated to reflect that Dudley is vice chair of the Federal Open Market Committee.