Fed's Dudley hopeful on rate hike this year

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[April 20, 2015]  NEW YORK (Reuters) - Economic performance will determine when the Federal Reserve finally raises U.S. interest rates from near zero, an influential Fed official said on Monday, adding he hopes to tighten policy later this year.

"We have to see what unfolds," New York Fed President William Dudley said in a speech that repeated cautious optimism that the U.S. economy will continue to expand and that inflation will begin to firm later this year.

Still, he said, the economy has further to go toward the central bank's dual goals of full employment and 2-percent inflation.

The data will "hopefully" support a rate hike later this year, Dudley said at the Bloomberg Americas Monetary Summit. But "the timing of normalization remains uncertain because how the economy evolves is also uncertain," he added.

Dudley, a permanent voter on U.S. monetary policy and a close ally of Fed Chair Janet Yellen, repeated that the pace of tightening will depend on how financial markets react.

The Fed is expected to raise rates by June at the earliest but more likely in the second half of the year, according to forecasts by economists and Fed officials.

The move is expected to reverberate through markets globally. Dudley said it could create "significant challenges" for emerging market economies, but that many of them are better prepared for it now than a couple of years ago.

(Reporting by Jonathan Spicer and Daniel Bases; Editing by Chizu Nomiyama)

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