Federal Reserve

Fed's Dudley: More stimulus could mean Fed would hike rates faster

Dudley: 'Premature' to raise growth outlook

More stimulus could mean the Federal Reserve would raise interest rates faster, New York Fed President William Dudley told CNBC on Monday.

"We don't know what the fiscal policy is, we don't know how big it is and we don't know when it's actually going to occur," Dudley said in an exclusive interview on "Squawk on the Street," echoing prepared remarks from earlier in the day.

"It's premature for us to take on board these market expectations because just don't know what it is yet. But if fiscal policy were to turn more expansive and that would lend support to economic activity, then probably the Federal Reserve would probably remove accommodation a little bit more quickly over time."

He said: "Even if I thought fiscal policy stimulus were probably going to be moving in a more expansive direction, it would be hard to translate that in terms of what does it mean for monetary policy. I would like to see more detail myself."

In prepared remarks Monday, Dudley said he backs measured rate hikes if the U.S. economy stays on its current trajectory.

He also said financial conditions have tightened modestly since the Nov. 8 election.

"There is still considerable uncertainty about how fiscal policy will evolve over the next few years. At this juncture, it is premature to reach firm conclusions," Dudley, one of the most influential Fed policymakers, said.

He added the markets expect more fiscal policy and faster rate hikes under a Donald Trump administration. He said investor reaction is "appropriate."

Since last month's election of Trump as president, stocks, bond yields and the dollar have all risen. Dudley called this a "tightening," but not one that concerns him since it appears to be driven by expectations for more government spending that should boost the economy.

Trump was elected on a vow to increase infrastructure spending, cut taxes, reduce government regulations, and renegotiate or halt international trade agreements.

Dudley said more spending on infrastructure would actually increase the productivity capacity of the economy.

"It would resolve bottlenecks," Dudley told CNBC. "Think about New York City's second set of rail tunnels in from New Jersey. That's probably decades overdue."

His remarks came as many economists predict the Fed will decide to raise interest rates at its Federal Open Market Committee meeting in December. The last rate hike was in December 2015, the first in nearly a decade. Dudley is a permanent voting member of the central bank.

— Reuters contributed to this report.