Bloomberg Talks Sep 17, 2026
With Bill Dudley, former President of the Federal Reserve Bank of New York, who writes a regular column on Fed policy
Federal funds futures are pricing three or four more hikes over the next six to nine months, Bill Dudley said, after the Fed raised rates for the first time since 2023. He had written before the decision that 25 basis points was too small to move economic activity.
The Fed's own summary of economic projections shows growth holding up, unemployment flat and inflation returning to target anyway. Dudley said that combination does not usually happen.
"If you look at the summary of economic projections, growth doesn't slow, unemployment rate doesn't rise, yet inflation magically sinks back to 2%. I think it's going to be a little bit harder than that."
Dudley ran the New York Fed and sat on the committee that sets the rate he is now grading from outside. One of the hosts recalled him arguing in 2021 that the Fed might have to take rates to five when they were still near zero, which is roughly what happened.
The full segment is covered here so you can skip it.
Here are the 5 calls that matter.
Key Takeaways
Dudley reads Warsh's "removing a dose of accommodation" line as a signal that more doses are coming, and says futures agree
The Fed's projections describe an immaculate disinflation — no slowdown, no rise in unemployment, inflation back at target
The neutral rate is higher because of the AI capital-spending boom, and Dudley says the Fed has to take that on board
Rate moves of 25, 50 or 100 basis points will not change AI investment, in his view, because returns drive it
Diesel is the pass-through he watches: it reaches airfares, food and anything trucked, so it moves core and not just headline inflation
1. More Hikes Are Priced
Asked whether the case for a second hike is as clear as the case for the first, Dudley said yes, absent a sharp change in the data. His reasoning is that Warsh told the market he wants financial conditions less accommodative, and possibly restrictive, without saying how far that goes. Judging by how markets reacted, Dudley said, Warsh has not got there yet. Futures are pricing three or four hikes over the next six to nine months.
"I think that he also signaled that this is probably the first in a series by talking about removing a dose of accommodation. That implies that there's more doses to remove forthcoming." — Bill Dudley
2. An Immaculate Disinflation
Dudley's objection to the Fed's own forecast is that it asks for a fall in inflation without any of the things that normally produce one. Pressed on how much demand destruction is needed and what rate gets there, he said it depends on how markets respond. He agreed with Warsh that financial conditions are the right gauge of policy, because that is the channel through which policy reaches the economy.
"So if the stock market ignores the Fed's tightening, if the bond market ignores the Fed's tightening, then there's more for the Fed to do." — Bill Dudley
3. A Guarded Press Conference
One host asked whether Warsh should have explained more about the path ahead. Dudley graded the performance as much better than earlier ones but still tightly controlled: no follow-up questions, short answers, and no answer on where the neutral federal funds rate sits. He called it an odd position for a central bank not to state whether policy today is easy, neutral or tight.
"So certainly much better, but still very, very guarded, very, very constrained." — Bill Dudley
4. AI Has Lifted Neutral
Asked whether "removing accommodation" implies a higher neutral rate or was just a comment on last year's 75 basis points of cuts, Dudley took the first reading. Hundreds of billions of dollars going into data centers and the chips inside them raises the demand for capital, and with it the neutral rate. He added the caveat that if the investment boom ends, neutral probably falls back.
"Yeah, I think neutral is higher. It's higher because we have this huge AI investment spending boom that's pushing up the neutral rate. That's increasing the demand for capital." — Bill Dudley
5. Why Hike at All
If AI spending is insensitive to rates, one host asked, why act. Dudley's answer was about credibility rather than demand. Inflation has run above target by a meaningful margin for five years and the Fed has kept the market believing it will get back to 2%, but he said that cannot be stretched indefinitely with the economy performing well and the labor market in balance. The war in Iran and higher oil prices, he said, raised the cost of waiting.
"Because you can't let inflation get ingrained above 2%. The Fed's gotten away with something over the last few years." — Bill Dudley
"So any good or service that has to be trucked around the United States has to embody that cost. So it's not just going to be in the headline inflation rate. It's going to start to filter into the core inflation rate as well." — Bill Dudley
Dudley said it is possible the Fed would not be discussing hikes at all if oil were cheaper, and that what matters is the distribution of price increases rather than the oil price itself.
Bonus Insights
One host returned to a conversation the two had around 2021 with Mohamed El-Erian, when Dudley said rates might have to reach five and that sounded implausible with rates near zero. They did reach five, without the economic pain the Fed chair of the day warned would be needed. Asked what lets this economy carry those rates, Dudley pointed to financial conditions: large stock market gains support spending by people who own equities, which he noted does nothing for those at the lower end of the income distribution. He treats the AI boom as an outside force pushing the economy along, and said it will be judged on returns over the next few years rather than next month.
Dudley's bottom line is that this hike was the first of several, and that the Fed's own forecast of painless disinflation is the part he does not believe.
Products, Companies & Tools Mentioned
The Federal Reserve (Raised rates for the first time since 2023; Dudley says the summary of economic projections implies disinflation with no slowdown)
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