By David Milliken and Marc Jones

LONDON (Reuters) – Dallas Federal Reserve President Robert Kaplan said on Friday that he could back a rise in U.S. interest rates as soon as June or July, if U.S. economic data firms up as he expects.

Kaplan, who does not currently vote this year on the Federal Open Market Committee, said interest rates should rise gradually but that financial markets had underestimated the Fed’s readiness to follow December’s rate rise with another move.

“We’ll see how the second quarter unfolds but I think the market may well be underestimating how soon we might move next,” Kaplan said at an event in London hosted by think-tank OMFIF.

“If the second-quarter data is firming you will see me advocating in the not too distant future that we try to take the next step. We will see what meeting, whether that means June or July or what else. I’d like to see it happen,” he told reporters after.

The Fed kept rates on hold at 0.25-0.5 percent this week and signaled it was in no rush to raise them again soon, citing slowing economic activity despite an improved labor market.

The message pushed the dollar sharply lower and helped drive oil prices to their highest so far this year.

For economists it also added to a feeling that has been growing since the start of the year that U.S. rates may not be set to diverge from those in Europe and Japan as much as many had predicted.

Kaplan’s remarks were the first from a U.S. policymaker after this week’s Fed rate decision, and appeared calculated to drive home a more hawkish message on rates.

If GDP growth rebounds this quarter, as expected, “I personally will be moving toward advocating some removal of accommodation sooner rather than later,” Kaplan said in a Bloomberg TV interview after his speech.

“I will also advocate that we take these steps in a gradual and patient manner,” he said, expressing a cautious view on normalizing rates held widely at the Fed.

LOWER PEAK

Kaplan also said he expected rates to peak at a lower level than seen historically.

In forecasts released last month, all but one of the Fed’s 17 policymakers said they believe it will be appropriate to raise rates at least twice this year. Traders are betting on just one hike.

The Fed raised rates last December for the first time in nearly a decade but has kept them unchanged since then over worries about global growth and low inflation.

Kaplan forecast U.S. gross domestic product growth this year at 2.0 percent, slightly faster than he projected last month.

U.S. employers can continue to add jobs at a “healthy” pace without overheating the economy, largely because of a global labor surplus putting downward pressure on inflation, he said.

But Kaplan also expressed confidence that inflation, which has undershot the Fed’s 2.0 percent target for years, will return to that level over the medium term as the downward pressure from a strong U.S. dollar and cheap oil abates.

He told reporters he would be looking to see whether other economic indicators caught up with measures of a labor market that was rapidly closing in on full employment.

“It’s going to have to get reconciled one way or the other. It’s either going to happen with the PCE (inflation) and other numbers firming, or other numbers weakening,” he said.

“We still believe the consumer in the U.S. is strong and has the capacity to be spending.”

The state of the debate ahead of Britain’s June 23 referendum on whether to stay in the European Union could also affect Kaplan’s view about a Fed hike on June 15.

Sterling could suffer a “sudden depreciation” if Britain left the EU, he said, with ripple effects for the world economy.

(Reporting by Marc Jones, David Milliken and Ann Saphir; Editing by Clive McKeef and James Dalgleish)