(Adds market moves, comments on balance sheet)
June 26 (Reuters) - The recent narrowing of credit spreads, record stock prices and falling bond yields could encourage the Federal Reserve to continue tightening U.S. policy, one of the most influential Fed officials said in remarks published on Monday.
"Monetary policymakers need to take the evolution of financial conditions into consideration," New York Fed President William Dudley, a permanent voter on U.S. interest rates and a close ally of Fed Chair Janet Yellen, said on a closed-to-the-press panel on Sunday.
"When financial conditions ease, as has been the case recently, this can provide additional impetus for the decision to continue to remove monetary policy accommodation," he said according to prepared remarks published by the New York Fed.
The Fed has raised rates three times since December and aims to begin shedding some of its $4.5 trillion in bond holdings later this year. Yet financial markets have not tightened as much as some expected, with equity indexes regularly logging new records and the 10-year Treasury bond rate declining since March.
Dudley has repeatedly warned that the Fed would raise rates more aggressively if financial conditions did not tighten as desired, and vice versa.
Turning to the Fed's plan to shed bonds, Dudley noted that Treasury and mortgage-backed bond markets have reacted little. "To me, this suggests that these communications have generally been effective in fostering an orderly adjustment in expectations about how we are likely to normalize our balance sheet," he said on the panel in Basel. (Reporting by Jonathan Spicer; Editing by Nick Zieminski)