Dudley sees Fed rate hikes as U.S. inflation weakness fades

SYRACUSE, N.Y. (Reuters) - The Federal Reserve is on track to gradually raise interest rates given factors depressing inflation are "fading" and the U.S. economy's fundamentals are sound, an influential Fed policymaker said on Monday.

New York Fed President William Dudley, among the first U.S. central bankers to speak publicly since their decision last week to hold rates steady for now, cited the soft dollar and strong overseas growth among the reasons he expects slightly above-average U.S. economic activity and a long-sought rise in wages.

"With a firmer import price trend and the fading of effects from a number of temporary, idiosyncratic factors, I expect inflation will rise and stabilize around the (Fed's) 2 percent objective over the medium term," he told students and professors at Onondaga Community College.

"In response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually," added Dudley, a close ally of Fed Chair Janet Yellen and a permanent voter on monetary policy.

Dudley's comments were similar to his speech earlier this month, and reinforced the growing expectation that the Fed is set to raise rates for a third time this year in December. That notion was driven home by Fed policymakers' forecasts published last week.

Dudley nodded to the three devastating hurricanes that have struck parts of the U.S. south and Caribbean, noting their effects will likely make it more difficult to interpret economic data in coming months. He said, though, that the effects would likely be short-lived and noted that such events tend to boost economic activity as rebuilding gets underway.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)