“The market understands that more than four is quite unlikely, because that would no longer be a gradual path of monetary policy tightening. It would also imply that the Fed was going to tighten by 50 basis points at a press conference meeting or go meeting to meeting,” Dudley said. “So I think that the market sort of sees three as possible and four as possible, but five or six seems to be quite unlikely.”
Dudley is serving his last few months as chief of the pivotal New York operation. He will leave in mid-June and make way for John Williams, currently head of the San Francisco Fed.
While Fed critics have bemoaned the lack of diversity among central bank chiefs, Dudley called Williams “extremely well-qualified” for the position.
In other matters, Dudley said current market valuations “don’t look unreasonable” and that volatility, while high compared to 2017, is “back to a more normal regime.”
And he said the U.S. has “legitimate issues” with China over trade, though he said a full-scale trade war would hurt.
“If trade barriers go up, it’s bad for the U.S. economy. You’re going to have more inflation, less growth, lower productivity, just bad, bad outcomes,” he said.