Uncertainty over the outlook for the U.S. economy is higher than usual, which calls for a “cautious and gradual approach” to interest-rate increases, Federal Reserve Bank of New York President William C. Dudley said.

Dudley, speaking Friday in Bridgeport, Connecticut, echoed recent comments from Fed Chair Janet Yellen, who said March 29 that the presence of downside risks to the outlook meant it was appropriate to “proceed cautiously in adjusting policy.”

“The factors behind the financial turbulence we saw earlier this year do not yet appear to be resolved fully,” Dudley said. “Although the downside risks have diminished since earlier in the year, I still judge the balance of risks to my inflation and growth outlooks to be tilted to the downside.”

Investors have marked down the probability of any Fed tightening this year in recent weeks, and now see roughly even odds of just one quarter-point rate increase in 2016, according to trading in futures contracts linked to the central bank’s benchmark federal funds rate.

In December, officials raised the rate for the first time in almost a decade, and the median estimate of the 17 policy makers on the rate-setting Federal Open Market Committee was that four quarter-point rate increases would be appropriate in 2016. Last month, when officials submitted updated projections, that number fell to two, as increased concerns over global economic growth weighed on the outlook. The FOMC next meets April 26-27 in Washington.

Economic Growth

The New York Fed chief said he continues to expect the U.S. economy will grow about 2 percent this year, which in turn should reduce the unemployment rate further, to around 4.75 percent.

He highlighted low inflation expectations as a “cause for concern” that presented risk to his outlook that inflation would gradually rise to the Fed’s 2 percent target, while adding that the “recent rise in inflation and in measures of inflation expectations have increased my confidence around this outlook compared to earlier in the year.”

Dudley, reinforcing other comments Yellen made, said the Fed should be cautious because it has limited ability to lower interest rates if the economic outlook deteriorates. The central bank can use communications and balance-sheet policies as monetary stimulus if warranted, he said.

Answering questions after the speech, he added that if the Fed needed to provide additional stimulus, “we might not decide to go to negative rates for a whole variety of reasons,” as central banks have done recently in Europe and Japan.

“We should be supportive of their efforts to stimulate their economies,” because stronger growth in those regions would benefit the U.S., he said. The side effects on exchange rates from divergent monetary policies have receded lately, Dudley added.

“Some of the pressure that we saw in the currency markets with the dollar strengthening have been reversed over the last six weeks or so,” he said. “So that problem seems to be a little bit less severe.”