Gradual removal of monetary policy accommodation continues to be appropriate, despite inflation coming in below central bankers’ inflation objective of 2%, the head of the New York Federal Reserve said.

Speaking to the Council for Economic Education in Brooklyn, N.Y., on Oct. 6, William Dudley said he was "surprised by the persistence of the shortfall" of inflation. He noted that if that shortfall were caused by structural factors, rather than transitory occurrences, the economy could likely employ more people without a "troublesome large rise in inflation."

If that were to be the case, Dudley said the "upward trajectory" for raising rates should be "shallow."

Market participants expect one more rate hike, likely in December. Median expectations from Federal Open Market Committee policymakers project three more rate hikes through 2018.

The Fed has also begun the process of reducing its $4.5 trillion balance sheet. Dudley said he expected the tightening effect of that process to be "modest," as the Fed had seen "that the impact on the level of long-term interest rates has been small as expectations have adjusted."