Former Fed Official Dudley Says Case for Rate Cuts Is 'Very, Very Weak'

Former New York Fed President Bill Dudley warned on May 26, 2026, that the Federal Reserve's inflation-fighting credibility is at risk, stating the justification for lowering interest rates is "very, very weak." Dudley argued that the neutral interest rate may be substantially higher than policymakers estimate, driven by an AI-related investment surge and expanding government debt that reduces savings supply. This suggests current policy may not be restrictive enough to tame inflation, which has run above the 2% target for over five years. He cautioned that allowing inflation to persist would de-anchor expectations, possibly requiring a severe recession to restore them later. The comments come as new Fed Chair Kevin Warsh prepares to lead his first policy meeting amid the largest monthly CPI increase since 2023. Fed Governor Christopher Waller separately said he cannot rule out supporting rate hikes if inflation fails to decline, emphasizing the need to defend the central bank's credibility even at the cost of short-term growth.