September hike possible, markets too complacent: Fed

New York

THE Federal Reserve could potentially raise interest rates as soon as next month, New York Fed president William Dudley said, warning investors that they are underestimating the likelihood of increases in borrowing costs.

"We're edging closer towards the point in time where it will be appropriate, I think, to raise interest rates further," Mr Dudley, who serves as vice-chairman of the rate-setting Federal Open Market Committee (FOMC), said on Tuesday on Fox Business Network. Asked whether the FOMC could vote to raise the benchmark rate at its next meeting on Sept 20-21, Mr Dudley said: "I think it's possible."

Investors expect about one rate hike between now and the end of next year, according to federal funds futures contracts, and they marked up probabilities only slightly on Tuesday. Mr Dudley said that such estimates are "too low" and that "the market is complacent about the need for gradually snugging up short-term interest rates over the next year or so". "We are looking for growth in the second half of the year that will be stronger than the first half," Mr Dudley said. "I think the labour market is going to continue to tighten, and in that environment I think we are getting closer to…