According to New York Fed President William Dudley, the Federal Reserve needs to approach rate hikes cautiously because of lingering external risks to the US economy.
Dudley noted that financial markets are still too volatile, despite the fact that downside risks have diminished since earlier in the year. There is also an increased probability that growth and inflation outlooks will be revised to the downside.
The Fed official said that inflation expectations are still giving cause for concern.
Declining energy and raw materials prices indicate prolonged deflationary pressures and renewed tightening of financial market conditions may adversely affect the US economy.
Dudley said he expects the US economy to expand at about 2% in 2016, with unemployment falling to 4.75%.
In December 2015, the Fed increased its federal funds target by 25 basis points to 0.25-0.50% from 0-0.25%, for the first time in nine years.
