“Market participants should be able to think right along with policymakers, adjusting their views about the prospects for normalization in response to the incoming data,” said Federal Reserve Bank of New York President William Dudley on Tuesday, noting that the conditions that will determine the timing of the Fed raising rates from their current near-zero levels are “well specified”.
“This implies that liftoff should not be a big surprise when it finally
occurs, which should help mitigate the degree of market turbulence
engendered by lift-off,” Mr. Dudley said. The official reiterated he is not sure when this will happen adding that it will hopefully occur this year.
Mr. Dudley who also serves as vice-chairman of the monetary-policy setting Federal Open Market Committee explained “the timing of lift-off will depend on how the economic outlook evolves. Since the economic outlook is uncertain, this means the timing of liftoff must also be uncertain.”
there remains considerable uncertainty about the outlook for monetary policy in the wake of data showing a weak start to the year. Many in markets believe the Fed could raise rates in the late summer or early fall.
San Francisco Fed chief John Williams, who also holds a voting role on the FOMC and is widely viewed as a close ally of Fed Chairwoman Janet Yellen, said in an interview with CNBC that the Fed likely will not let markets know in
advance about rate hikes. The Fed “needs
to get out of this business of telegraphing our decisions,” he said adding
markets just need to get used to the uncertainty.
Mr. Williams said “it’s healthy for future actions to be uncertain because future conditions can change.”
Meanwhile, Mr Dudley said that Fed's present behavior will surely have an impact on the financial markets. “Our monetary policy actions, though, often have global implications that feed back into the U.S. economy and financial markets, and we need to always keep this in mind,” he said. Higher borrowing costs in the U.S. ” will have implications for global capital flows, foreign exchange valuation and financial asset prices even if it is mostly anticipated when it occurs.”
Now-completed Fed bond buying stimulus efforts have affected bond prices. Fed "should be humble” when it comes to rate rises and the effect on markets, because of the influence of these unconventional strategies, he said.