By Jonathan Spicer

By Jonathan Spicer


NEW YORK (Reuters) - The Federal Reserve expects sluggish U.S. inflation to rise over the next several months while the hot labor market gets yet hotter, one of the Fed's most influential officials said on Thursday in comments that reinforce its gradual policy-tightening plan.


In a speech calling on the United States to better address factors driving racial inequality of employment and income, New York Fed President William Dudley suggested the central bank was on track to raise interest rates once more and begin shedding some bond holdings this year.


"Our outlook anticipates a continued moderate growth trend, with some further strengthening in the labor market and an increase in inflation over the medium term toward our objective of 2 percent," Dudley said in prepared remarks that did not specifically mention monetary policy.


Dudley, a close ally of Fed Chair Janet Yellen and permanent voter on U.S. monetary policy, said "sluggish" productivity growth is behind persistently "modest" wage growth.


Unemployment has fallen to a 16-year low of 4.3 percent, yet wages have risen only at a disappointing 2-to-2.5-percent rate annually. That reflects overall U.S. price readings of about 1.5 percent in recent months, below the Fed's 2 percent goal.

Turning to the politics of inequality, a topic that both he and Yellen have addressed in the past in the face of some criticism, Dudley said it was "deeply troubling" that research showed only 37 percent of Americans think their children will be better off than them.

In part he attributed higher jobless rates for blacks and Hispanics to technological changes and globalization that have harmed manufacturing and other middle- and lower-skill jobs, and called for better education and training policies to address it.

"The forces of technological change and globalization have contributed to wage inequality by pushing up wages for those toward the top, and stifling wage growth for workers toward the middle and bottom of the wage distribution," said Dudley, whose term at the New York Fed ends next year.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)