FOMC policy-maker William Dudley, the President of the New York, who has a permanent seat at the rate-setting committee expressed an upbeat outlook with respect to the U.S. economy. Speaking in Plattsburg, New York, Mr. Dudley said that he remains optimistic that the tightening of the U.S. labor market will eventually trigger higher inflation, despite weaker readings in the past few years. He said, “We’re pretty close to what we think is full employment……..Inflation is a little bit lower than what we would like, but we think if the labor market continues to tighten, wages will gradually pick up, and with that, we’ll see inflation get back to 2 percent.” He added further, “I’m actually very confident that even though the expansion is relatively long in the tooth, we still have quite a long way to go…….This is actually a pretty good place to be.”

Hawkish comments coming from an influential policymaker, who has long been on the dovish side, pushed the dollar higher and the Treasury bonds lower and yields higher. U.S. 2-year yield is currently trading at 1.37 percent, while the 10-year yield is currently trading at 2.2 percent. The dollar index is trading at 97.3 against a basket of currencies.

Despite hawkish rhetoric from the Fed and Mr. Dudley, the financial markets are still not convinced for a third rate hike in 2017. The next hike is currently priced for March next year, with 58 percent probability.