The tool may be less that ideally sharp, but the bit of dust that is visible looks about right. I am presuming you did some cleaning before the picture? The ends of the rectangular path, being cross grain, should have made chips no matter what.
Strings like this can be a real problem, since they don’t clear well. They can tangle around the tool and interfere with proper cutting, among other things.
As said, a likely contributor is the tool path matching the grain direction. The easiest solution is modify the tool path. For a narrow slot, this isn’t always possible, but for many operations, it is.
If your CAM allows (many do, but not all), set the preferred cut direction for the operation at an angle to the feature. It doesn’t take a lot of angle. Just enough that the tool isn’t following the grain direction in a way that it can peel strings. Best is climb cutting out of the grain so the tool shears the chips off without tearing. (see the crude MSPAINT sketch)
The climb cut side (above the tool) will be clean, there will be a rougher cut on the conventional cut side, maybe with tearout.