If you want to see interest rates go up, raise your wages. That was one of the key takeaways from a sit-down talk with New York Federal Reserve President William Dudley on Wednesday.

Dudley spoke with Reuters editor-in-chief Stephen Adler in a question and answer session in Manhattan, about the state of the economy and the prospects for an interest rate hike later this year, which Fed watchers say may be delayed after an underwhelming jobs report last week. 

“Unemployment is too high and inflation is too low, and that gives us the ability to wait a bit longer,” Dudley said, hinting that a rate hike was a distinct possibility in 2015, but perhaps not as soon as the next meeting of the Federal Open Market Committee in June. The Fed would also like to see inflation of around 2 percent, and unemployment at more historical levels, below five percent.

Early data suggests that the economy grew at a sluggish 1 percent rate in the first quarter, far below the average 2.7 percent the economy has notched over the last two years. March also saw a particularly weak jobs report, with employers hiring just 126,000 workers, not the 248,000 predicted.

Most significantly, wage growth has been low, at around 2 percent annually, Dudley said, and that would need to change to have a really durable recovery, which in turn would make it more likely the Fed would raise interest rates.

“We want to see acceleration of wage inflation,” Dudley said. “It is appropriate to see workers capture an increasing share of income created by the economy, because a disproportionate share of the gains is going to businesses, not households.”

So if you're in the camp that wants low interest rates and the promise of cheap capital, you'll keep a keen eye on wages. On the other hand, increasing employee pay can help create a stronger recovery. Higher interest rates also mean banks will be more likely to lend to you, because their loans become more profitable.

Looking Ahead

Economists and other market watchers have been trying for months to parse the Fed’s statements about when an interest rate increase might occur. The federal funds rate, or the rate at which financial institutions lend money to each other, has been near zero percent since the financial crisis began in 2009. The low rate environment has led to six record years of stock market gains, prompted in part by the Fed’s bond-buying program known as quantitative easing. By buying bonds, it had hoped to increase the value of other potential holdings, such as stocks.

Nevertheless, the recovery has been uneven. The tech sector--with its massive amount of venture capital investment and outsize stock market gains--has been one of the brightest spots, while more sober sectors like manufacturing and the service economy have performed less strongly. Meanwhile, some workers are seeking higher wages and struggling to increase the minimum wage.

The New York Federal Reserve is perhaps the most powerful bank in the reserve board system, with its connection to big Wall Street banks and to the city, one of the leading world financial capitals. It is thus the “operational arm” for the Fed’s monetary policies, Dudley said.

As such, Dudley was questioned by audience members about how prepared it was to meet another financial crisis.

“In some ways we are in much better shape today than we were in 2007,” Dudley said. “Our job is to reduce the probability of [another] financial crisis. And if there is one, to make sure it is less severe in scope, and to make sure the financial system is more robust."