Bill Dudley stated that Federal Reserve Chair Jerome Powell's choice to stay on as a governor after his term as chair ends would help reassure Wall Street and the public, following persistent pressure from President Donald Trump to lower interest rates. The Fed has faced "relentless attacks from the president, raising questions about its independence," Dudley said on Monday. Dudley, a former president of the New York Fed and now a Bloomberg Opinion columnist, added, "Powell believes that remaining at the Fed would strengthen the perception of its independence. If he is willing to stay, I think that is reasonable."

Powell's term as a governor lasts until 2028. His decision to remain on the board after stepping down as chair on May 15 is uncommon in Fed history, with no precedent in recent decades. Trump has consistently criticized Powell and the Fed, threatening criminal investigations, lawsuits, and dismissals of Fed officials. Kevin Warsh, whom Trump nominated to succeed Powell, has already laid out arguments for the interest rate cuts the president seeks. However, traders are no longer betting on rate reductions this year, and Dudley noted that the case for monetary easing is "relatively weak."

One of Warsh's arguments for lowering rates is that artificial intelligence will eventually curb inflation by boosting labor productivity. Dudley countered this, pointing out that AI could initially drive investment demand and potentially increase cost pressures as companies build new capital infrastructure to achieve productivity gains. Dudley also remarked that a Fed under Warsh's leadership would have ample room for adjustments.

"There are many areas that could be adjusted and improved," Dudley said. "First, a framework for quantitative easing and quantitative tightening is needed, and currently, there isn't one. Second, I believe communication really needs to be enhanced."