Bill Dudley Calls Fed’s 25-Basis-Point Hike ‘Too Small’

Summary

Bill Dudley, former New York Fed President and Bloomberg Opinion columnist, argues the Fed's recent 25-basis-point hike is too small and that another hike is likely unless the data changes dramatically. He says financial conditions remain too accommodative and inflation risks are skewed to the upside, partly because higher oil and diesel prices are feeding into core inflation. Dudley also argues the AI investment boom is raising the neutral rate and is not sensitive to Fed rate hikes.

• Dudley says the case for another Fed hike is clear unless data shifts dramatically.
• He argues financial conditions are still too loose and markets expect more hikes.
• He sees upside inflation risks from oil and especially diesel prices filtering into core inflation.
• He thinks the Fed's forecast of immaculate disinflation is too optimistic.
• He says the AI investment spending boom is pushing the neutral rate higher.
• He notes AI capex is not very interest-rate sensitive and is driven by long-term returns.
• He warns the Fed cannot let inflation stay above 2% without risking credibility.