Former New York Fed President William Dudley said the Federal Reserve now has strong justification to keep tightening monetary policy, and that a September rate increase may not be a one-off move. In his view, it could mark the start of a series of hikes instead.
Dudley pointed to inflation still running above the Fed’s 2% target, a labor market that remains relatively steady, and an August core CPI reading that rose 0.3% month over month. He said those factors have eased market hopes that inflation is cooling. Dudley also argued that the Fed is still clearly off target on price stability under its dual mandate, with upside inflation risks persisting in the near term.
He said the Fed’s Summary of Economic Projections, due in September, may show a median expectation for two rate hikes in 2026, each worth 25 basis points. Dudley also noted that over the past several decades, the probability of another hike after an initial move has been as high as 85% to 90%, and said markets should not treat the coming action as limited in scope. He added that if Warsh moves decisively on rates, it could help demonstrate both anti-inflation resolve and the Fed’s policy independence.
According to BlockBeats, former New York Fed President William Dudley said on Sept. 15 that the Federal Reserve has more than enough reason to keep monetary policy tight, and that a September rate hike may not be a one-time move but the beginning of a continued tightening cycle.
Dudley said U.S. inflation remains above the Fed’s 2% target, the labor market is still relatively stable, and core CPI for August rose 0.3% month over month, which in his view has reduced market confidence that inflation is cooling.
Dudley sees the Fed as still off target on price stability
He said the Fed is clearly missing the price-stability side of its dual mandate, and that inflation still faces upside risk in the near term.
Dudley expects the Fed’s Summary of Economic Projections, or SEP, to show a median forecast in September for two cumulative rate hikes in 2026, with each move at 25 basis points.
Markets should not view the move as limited
He also said that over the past several decades, the probability of another rate hike after a first move has been as high as 85% to 90%. On that basis, he said markets should not regard the coming action as something brief or isolated.
Dudley added that if Warsh raises rates decisively, it could help show both his determination to curb inflation and the Federal Reserve’s policy independence. He warned that Warsh should not "outsource" monetary policy to financial markets, and said the future rate path should be set by the Fed on the basis of economic data and its own policy judgment, rather than in response to market expectations.
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