New York Fed President William Dudley said in a speech on Monday that the Fed would likely raise its interest gradually and cautiously.

"Monetary policy adjustments are likely to be gradual and cautious, as we continue to face significant uncertainties and the headwinds to growth from the financial crisis have not fully abated," he said.

Dudley noted that the U.S. labour market improved, the housing sector was recovering, the household sector was much less leveraged, and the banking system was much healthier, while the corporate sector was highly profitable.

New York Fed president expects inflation to rise toward 2% target over the next few years.