Dudley, in clear signal, expects Fed rate hike this year

The Federal Reserve will likely raise interest rates later this year if the U.S. economy remains on track, one of the most influential Fed officials said on Wednesday in perhaps the clearest policy signal yet from the central bank.

"If the economy stays on its current trajectory I think ... we'll see an interest rate hike later this year," New York Fed President William Dudley told a modest dinner gathering at the Lotos Club, downplaying any market-related risks of tightening monetary policy in December.

Dudley, a permanent voter on policy and a close ally of Fed Chair Janet Yellen, added that a quarter-point hike this year "is not really that big a deal" given the economy is "reasonably close" to the Fed's goals of 2 percent inflation and maximum sustainable employment.

The Fed left rates unchanged at 0.25-0.5 percent last month, though published forecasts showed that most of its 17 policymakers expected a hike before year end. Economists and traders now expect the Fed to again stand pat at its next meeting, a week before the U.S. election on Nov. 8, but to finally hike in December.