Bill Dudley may have left the New York Federal Reserve Bank where he served as its president from 2009 to 2018 but he has never left his role as an member of the Fed and central banking world as he continues to write and talk about the Fed regularly, to work with the Bretton Woods Committee, the Group of 30, and much more.
In fact, just two hours before the Fed released its decision to cut its key rate by 25bps as widely expected, I joined Bill to do a fireside chat as the NYABE - the New York Association of Business Economics - presented him with its annual Butler Award which honors outstanding leadership in the field of business economics; it was awarded last to former Fed Chair and Treasury Secretary Janet Yellen.
We had a wide ranging discussion focused mostly on the coming path of monetary policy and prospect for Fed independence from the Trump administration. Bill was clear that he sees the slowdown in the labor market; many current officials have focused on this to argue for not just one but up to three rate cuts this year. And he expressed concern about inflation that is more now than four-and-a-half years above its 2% target and still rising.
How would he vote if he were still at the Fed? Without hesitation he said, “With the Chair.” And in the end that’s exactly what the governors on the Board and the district Fed bank presidents DID as they voted for the 25bps cut in the Fed’s key rate. A cut Powell described at his press conference as a cautionary “risk management” move during a time of great economic uncertainty.
The only dissent was from Steven Miran, President Trump’s choice to fill a recently vacated seat on the FOMC - the Fed’s policy-making policy committee - who dissented favoring a 50bps rate cut instead.
For now dive in and hear Bill explain why, after we all left NYABE event and scurried back to work to catch the big meeting news as it unfolded - why this one-man-out rate cut dissent is a victory for Powell and Fed independence. And what he expects will drive the Fed’s next move.
IMPORTANT NOTE - in coming days we will share exerpts from Bill’s fireside chat as they become available so you can hear about Bill’s experience not only as NY Fed president but also in his prior years as head of its Markets Group and in his earlier years as Chief Economist at Goldman Sachs and more. Stay tuned to CBC - Central Bank Central!
Fed aligns inflation risk with job market risk; acts on job front 00:01:48:00
So his (Powell’s) view is that monetary policy is restrictive today. So we move we need to move it to less restrictive because we're getting closer to the downside risk to the labor market being sort of equivalent to the upside risk to inflation. So it was a very, you know, measured, communication and measured adjustment that what was interesting is when the, summary of economic projections that came out, you know, at that, 2 to 2 15 or 2:00, people basically reacted to the fact, oh, there's going to be two more rate cuts after this one, this year.
The first cut may not be the deepest but it is crucial 00:02:19:17
And oh, God, the Fed is more aggressive. But, when you actually took a look at the, the so-called, interest rate plot, it was very less definitive. There were basically nine people who wanted, 0 or 1 more cut, and there were nine people that wanted, two more cuts. And there was one person, Steven Miran, almost certainly, who wanted many more cuts.
Action amid a split decision 00:02:44:04
So, you know, the Fed is is pretty split about whether, you know, 1 or 2 more cuts are appropriate this year. And I think, you know, Jay Powell in his press conference, also made it clear the uncertainty level here is high and the degree of difficulty of trying to balance, the two objectives of full employment and inflation when they're both when you're both are missing, your mandate is very, very difficult.
Data dependent Fed through year end? 00:03:07:13
And so stay tuned. You know, he basically did not, you know, like make a big deal about the fact that the summary of economic projections, you know, had a median of two more rate cuts. He downplayed that. So I think he, you know, what he's basically saying is, you know, where we go from here really depends on the economic, data that we're going to see in the future.
Only one dissent: New member on leave from CEA, Steve Miran 00:03:27:10
Another thing I thought was interesting about the meeting was there were there was only one dissent. Steve Miran, everybody else went along with the chairman. Took only cut. You got 25 basis point, including probably some people who didn't want to cut it at all. Because if you look at the summary of economic projections, there are a number of people that put in no rate cuts for this year. Yet they agreed to the rate cut at this meeting. And I thought this is what was likely to happen. I thought that the bulk of the FOMC was going to provide it was going to show tremendous deference. To Chair Powell. This is Chair Powell. Rate cut in my opinion. And this is something that he wanted to do. And the vast majority of the committee was willing to go along with him because they think that he made a good argument. And they're not really, you know, disagreeing with direction. They're just disagreeing with timing.
Powell retains control of the committee 00:05:09:10
And I think that was a great message to send to people. You know, let's imagine that there have been multiple dissents. Let's imagine that, you know, Chris Waller and Michelle Bowman had also called for 50 basis points. And let's imagine some of the Hawks on the FOMC. It said, oh, no, let's dissent in favor of no. And then there have been much more stories about how Powell was losing control of the committee. And I think what this basically reinforces, you know, he's not losing control of the committee at all..
Kathleen Hays: in a previous pre-Fed meeting Central Bank Central interview, Dennis Lockhart said: “So, I would be paying most attention in my work up to the meeting, to the question of what happens in October and December of 2025 and maybe a carryover into the first half of 2026. Anything beyond two <rate cuts> would make me nervous that the committee was really, falling away from its commitment to 2% inflation target. And, you know, it's been elevated for a long time.”
Powell is aware and still engaged with inflation goal 00:07:34:12
Well, I think that, you know, the fed needs to still be concerned about inflation. And I think Paul indicated in his press conference that he still is. So he actually was very careful to say that even though the risks to the labor market have increased, he basically implied that the risk to inflation was still, you know, it's still elevated. It's not like he's just forgetting about what's happening to inflation. He kind of asked a lot of questions about this at the press conference. And it makes sense. I mean, this is… we're four and a half years now of inflation above 2%. And people are sort of saying, well, you know, come on… you show inflation going back to 2% in two years, and we never seem to get there.
Can the Fed pull 2% inflation out of its 3% hat? 00:08:11:0
It's, you know, more likely than not that they can actually pull this off is because inflation expectations are still well anchored. Now, the thing that would really disturb the Fed is if we have continued inflation above 2%, and which is actually pretty likely over the next year or so because of the pass through of tariffs, interpreting the prices
Having anchored inflation expectations is a keystone to Fed policy 00:08:41:20
Powell is taking a lot of comfort from the fact that long term inflation expectations, with the exception of the University of Michigan survey, to some degree, have remained well anchored and and he mentioned that in his press conference.
Miran: not much impact 00:09:38:21
Typically someone from the administration comes into the fed. There was that, I mean, obviously, what's unusual in this particular case is the term is so short, it's only goes from September to the end of January. So that's why it makes sense, I guess what I want to ask maybe, maybe, you know, or we don't know, but how much does that dissent, how much influence, do you think he'll have on the thinking at the current members of the Federal Open Market Committee? Virtually none. Virtually none. I mean, I think they'll view it as politically motivated.
Miran is more of a potential preview than an influence 00:10:23:00
Take a look at where the Dot plot shows the lowest done. It's far away from everyone else in the committee. So he's not going to have a lot of influence on the committee at this point where Miran is important, is it potentially foreshadows what could happen to monetary policy if President Trump is actually successful, in taking over the Fed and success and taking over the Fed isn't just about appointing people to the board of governors, it's using that majority on the board of governors to start to replace Federal Reserve Bank presidents. I was actually quite pleased today to say that you see that Chris Wall or Michelle Bowman, although their top appointees, only supported a 25 basis point rate cut. So I thought that was actually pretty, noteworthy. You know, just because Trump is appointing you doesn't mean that you're necessarily going to do exactly what he wants you to do when you're sitting in that seat
Lisa Cook’s case is important- 00:12:11:20
That's why the Lisa cook's, situation is so important. If the courts rule that Trump can just dismiss people, from the board of governors for, you know, not for cause reasons, then obviously the the independence of the fed is is definitely compromised. Yeah. I, I was very pleased to see Chris Waller that, you know, just, you know, support the 25 basis point rate cut.
Sees more labor demand weakness than supply effects 00:13:16:13
Well, I think it's mostly a weak labor market as opposed to a lack of supply. I think where the lack of supply comes in is that you have a weak labor market, and it doesn't result in a big increase in the unemployment rate. So, I mean, if you look at, you know, job openings that they've come down, if you look at, you know, college grads trying to find new jobs coming out of college, they're having trouble. So, you know, it looks to me like it's a pretty low energy labor market. Now, the we the issue here is that's all we can afford. Because with the labor force growth having collapsed in 2025 compared to 2024 because of the sharp decline in illegal immigration into the U.S, and also on top of that, the deportations, you know, break even payroll employment, right now is about 50,000 to keep the unemployment rate, unchanged. So, you know, we need a fairly weak labor market to keep the labor market from overheating because we don't have much in the way of supply of labor
Tariff uncertainty of various types 00:14:54:10
They're just kind of hoping and or betting one way or the other that it's going to stop rising. Well, in the short run, it's not going to come down because there's more tariff price path rules to come. And I think, you know, it's true that the tariff pass through has been slower than people expected and smaller than people expected, but the story isn't over yet. You know, the tariffs have been sort of put place, put on, taken off, put on taking off. And that's probably delaying what companies are doing in terms of responding to the tariffs. And now we have this whole uncertainty about whether the tariffs, you know, a good chunk of the tariffs are actually, legal, based on the courts finding about, you know, that that, that I pocket that legislation can't be used to, to, to, to increase tariffs.
Bond market along for the ride… 00:17:06:04
I think the bond market basically is taking support from the fact that the path of short term rates is coming down. You know, short term, you know, long bond yields are basically the expected future short term rates plus, a risk room. But there's a limit to how low bond yields can fall because I think the risk premium is going up because there is a risk that the Fed's independence will in fact, be compromised. So right now there's sort of a tug in both directions in the bond market, potentially a higher risk premium because of questions about fed independence, but lower bond yields because the path of short term rates has come down.
Bond rally will have limits… and then there is Fed ‘takeover’ 00:17:24:18
But there's a limit to how low bond yields can fall because I think the risk premium is going up because there is a risk that the Fed's independence will in fact, be compromised. So right now there's sort of a tug in both directions in the bond market, potentially a higher risk premium because of questions about fed independence, but lower bond yields because the path of short term rates has come down. You know where this ends up. We'll have to see. It really depends on how successful, President Trump is into trying to take over the Fed, the Federal Reserve.
William C. Dudley
William C. Dudley became the 10th president and chief executive officer of the Federal Reserve Bank of New York on January 27, 2009. In that capacity, he served as the vice chairman and a permanent member of the Federal Open Market Committee (FOMC), the group responsible for formulating the nation's monetary policy.
Previously, Mr. Dudley served as executive vice president of the Markets Group at the New York Fed, where he also managed the System Open Market Account for the FOMC. The Markets Group oversees domestic open market and foreign exchange trading operations and the provisions of account services to foreign central banks.
Prior to joining the Bank in 2007, Mr. Dudley was a partner and managing director at Goldman, Sachs & Company and was the firm's chief U.S. economist for a decade. Prior to joining Goldman Sachs in 1986, he was a vice president at the former Morgan Guaranty Trust Company. Mr. Dudley was an economist at the Federal Reserve Board from 1981 to 1983.
Mr. Dudley received his doctorate in economics from the University of California, Berkeley in 1982 and a bachelor's degree from New College of Florida in 1974.
In 2012, Mr. Dudley was appointed chairman of the Committee on the Global Financial System of the Bank for International Settlements (BIS). Previously, Mr. Dudley served as chairman of the former Committee on Payment and Settlement Systems of the BIS from 2009 to 2012. He was a member of the board of directors of the BIS.
