Fed's Dudley: 'Animal spirits unleashed' on market

By Ovunc Kutlu

NEW YORK

Economic conditions have made it "more compelling,” for the Federal Reserve to implement an interest rate hike, New York Fed President William Dudley said Tuesday.

”Animal spirits have been unleashed" on the stock market after the election of Donald Trump as U.S. president, Dudley told CNN, referring to the record-breaking numbers the U.S. financial markets have experienced in recent months.

“[The] stock market is up a lot. Household and business confidence have increased significantly,” he said. “So, there's no question that sentiment has improved quite markedly post the election.”

Since the Nov. 8 election, Wall Street indexes have gained more than 10 percent, in large part to Trump’s promises of a massive increase infrastructure spending and to loosen business regulations.

"To the extent that you reduce the burden of regulation ... and you pursue greater infrastructure spending ... that would actually be supportive stronger economic activity," Dudley said.

With strong financial markets, growing consumer and business confidence, and the expectation of that government fiscal policies would stimulate the economy, Dudley "the case for monetary policy tightening has become a lot more compelling”.

The head of the New York Fed said, however, that Trump's proposed 54 percent increase military spending would not have much of an effect on economic growth.

"If you're increasing spending on military but cutting spending on discretionary or domestic programs, the net effect may not be very powerful in terms of supporting the economy," he said.

Minutes published last week of the last Fed meeting revealed the next rate hike would come "fairly soon”.

That does not necessarily mean within "a week, a month, a couple months”, Dudley said.

"Fairly soon means in the relatively near future," he said without providing any hint of a timeline.