NEW YORK CITY—New York Federal Reserve president William Dudley, regarded as one of the most influential members of the Fed's Board of Governors, said Monday he foresees continued gradual increases in the federal funds rate even as the Fed's 2% inflation benchmark remains elusive. Dudley made his observations, which also included an endorsement of making another rate increase this year, during an interview with the Associated Press.

“inflation won't get up to 2% very quickly on a year-over-year basis is because we've had these very low inflation readings over the last four or five months,” Dudley told the AP. Yet he added, “I think you'd want to continue to gradually remove monetary policy accommodation, even with inflation somewhat below target.”

For one thing, he said, “monetary policy is still accommodative, so the level of short-term rates is pretty low.” In addition, “financial conditions have been easing rather than tightening. So despite the fact that we've raised short-term interest rates, financial conditions are easier today than they were a year ago. The stock market's up, credit spreads have narrowed, the dollar has weakened, and those have more than offset the effects of somewhat higher short-term rates and the very modest increases that we've seen in longer-term yields.”