New York Fed President Says Rates Will Rise Gradually in 2016

Since the Federal Reserve raised rates in December, many in the mortgage industry have been waiting to see how the Fed will proceed in 2016 as far as increasing the federal funds rate further. Well, New York Federal Reserve President has finally shed some light on how the Fed intends to move forward with rate hikes.

New York Federal Reserve President and CEO William C. Dudley recently stated in a speech something similar to what the mortgage industry has been hearing for quite some time. He noted that "as we begin to push up short-term interest rates" over the next year will come gradually and "it depends on the data."

"As noted in the December FOMC statement, we expect that the normalization of monetary policy will be quite gradual. But, there is no commitment here," Dudley said. "The flow of the data—broadly defined―will drive our actions as it influences our assessment of the economic outlook and our view of the stance of monetary policy best suited to achieve our dual mandate objectives of maximum sustainable employment and price stability."

William C. Dudley

Dudley said that his vote in December based on his own assessment that "conditions for lift-off had been met." These conditions included further improvement in the labor market into 2016 confidence that inflation would begin to move back toward the Fed's 2 percent inflation objective over the medium term.

As far as the Fed's economic outlook is concerned, Dudley stated that "it does not appear to have changed much since the last FOMC meeting." He expect a weak fourth quarter GDP report, but this should be taken with a grain of salt compared to the positive jobs reports recently.

"I continue to expect that the economy will expand at a pace slightly above its long-term trend in 2016. In other words, I anticipate sufficient economic strength to push the unemployment rate down a bit further and to more fully utilize the nation’s labor resources," he stated.

"Good monetary policy-making requires ongoing assessment and judgment, not the adherence to mechanical rules. I know market participants desire certainty, but in the uncertain world in which we live, that desire is not consistent with the policy that would best achieve our objectives," Dudley concluded. "We will strive to communicate as clearly as we can so you can think along with us and alter your expectations just as we do in response to incoming information."

Click here to read his full speech.