Fed to 'probably' hike this year, hit inflation target by 2016 - Dudley

REUTERS - New York Federal Reserve Bank President William Dudley said on Monday the Fed remains on track for a likely rate hike this year and could reach its inflation target next year, faster than many other policymakers anticipate.

Dudley said the first hike could come as soon as October as policymakers take stock of an improving economy.

The Fed "will probably raise rates later this year," with the Oct. 27-28 session "live" for the rate hike debate, Dudley said at an event sponsored by the Wall Street Journal in New York. The Fed also meets in December.

The U.S. central bank delayed a rate hike at its September meeting in the face of uncertainty about the global economy, a market selloff in the U.S. and concern that inflation might fall further away from the Fed's two percent target.

But Dudley said he now feels inflation could reach the Fed's two percent target sometime next year, a year or more sooner than the median forecast by Fed policymakers earlier this month.

Dudley said he was confident that weak global economic conditions and the strong U.S. dollar would prove to be passing influences and allow the Fed to raise rates soon.

He said the central bank would not deliberately "overshoot" the inflation target, but after the damage done by the 2007 to 2009 recession he said he also saw value in letting unemployment fall as low as possible even if that means a faster pace of price increases.

Referring to an incident last week in which Fed Chair Janet Yellen verbally stumbled as she tried to finish a speech, Dudley said her health is "fine."

(Reporting by Howard Schneider and Richard Leong; Editing by Chizu Nomiyama and Meredith Mazzilli)