The recent spike in U.S. inflation is likely temporary for now – but it could get more sustained in the years to come as more people return to work, said former New York Fed President William Dudley.

“I think right now the fear will probably subside a bit over the next year, but I think in the long run we will see inflation of … over 2%? I think the Fed is going to get this done.” Dudley told CNBC’s Squawk Box Asia on Wednesday.

Inflation has been the focus in the last few weeks. Investors fear that a rapid rise in consumer prices would cause the Federal Reserve to hike rates sooner than expected. The US consumer price index rose 4.2% year over year in April – the largest increase since September 2008.

The Fed had previously signaled that it was ready to let inflation run above the 2% target for some time before raising rates.

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Dudley said the recent spike in inflation was due to factors that will dissipate over time, such as disruptions in supply chains and comparing it to lower numbers last year when the economy was badly hit by the pandemic.

In addition, more people will need to find employment before the US faces a labor shortage that is more persistent in inflation in the years to come. he added.

Still, Dudley said he believes the Fed will discuss curbing its asset purchases by the end of the year and begin stopping its purchases.

Several Fed officials have said it is time to at least talk about easing bond buying, a monetary policy tool known as quantitative easing. QE is used by central banks to stimulate economic activity by buying financial assets such as long-term stocks. Selling these assets will reduce the money supply and lower inflation.

Dallas Fed President Robert Kaplan told CNBC last week that potential real estate excesses and other signs of inflation suggest the central bank should slowly begin to pull back.

Reserve currency status of the US dollar

Overall, the US economy is recovering from the collapse of Covid-19 and that is contributing to the attractiveness of the US dollar, said Dudley.

The greenback is the world’s dominant reserve currency, but the proportion of US dollar reserves held by central banks fell to 59% in the fourth quarter of 2020 – the lowest level in 25 years, the International Monetary Fund said in a blog post.

Billionaire investor Ray Dalio, founder of Bridgewater Associates hedge fund, told CNBC’s Managing Asia that the Chinese yuan will become a global reserve currency faster than most people expect.

Dudley said he doesn’t think the US dollar’s status as a global reserve currency is threatened anytime soon.

“I think the dollar is very safe in the short term because what is the alternative? What other currency could displace the dollar?” he asked rhetorically.

“And I think it’s also a matter of US economic performance. I think US economic performance is likely to be pretty good for the next few years.”

– CNBC’s Jeff Cox contributed to this report.