Dudley: Fed Rate Hikes May Signal Continuous Tightening

Former New York Fed President Dudley stated that the current rationale for the Federal Reserve to tighten monetary policy is sufficient, and the rate hike in September may mark the beginning of a series of increases. Dudley pointed out that the U.S. inflation rate continues to exceed the Fed's 2% target, the labor market remains stable, and the core CPI rose by 0.3% month-on-month in August, dispelling market concerns about cooling inflation. He believes that the Fed has deviated from its dual mandate regarding price stability, and there are still upward risks to inflation in the short term. Dudley expects that the economic forecast summary released by the Fed in September may provide a median expectation of two cumulative rate hikes by 2026, each by 25 basis points. He mentioned that the probability of the Fed raising rates again after a single hike in the past few decades has been as high as 85% to 90%, and the market should not view this round of actions as merely a trial. Furthermore, Dudley believes that if Waller decisively raises rates, it would help demonstrate his commitment to curbing inflation and the Fed's policy independence, warning that Waller should not outsource monetary policy to financial markets, and the future path of interest rates should be determined by the Fed based on economic data and its own policy judgments.

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