A former top US Federal Reserve official has suggested the US central bank reject interest-rate cuts that would help US Donald Trump’s re-election prospects next year, drawing swift criticism that such an approach would jeopardize the independence of a Fed already under fierce attack from the US president.
A Bloomberg Opinion column by former New York Fed president Bill Dudley, published on Tuesday, argued the Fed risks enabling further escalation by the US president in the trade spat with China and officials should state explicitly that they “won’t bail out an administration that keeps making bad choices on trade policy.”
“There’s even an argument that the election itself falls within the Fed’s purview. After all, Trump’s re-election arguably presents a threat to the US and global economy,” wrote Dudley, who headed the New York Fed from 2009 to last year and was previously a Goldman Sachs Group Inc economist.
“If the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decisions will affect the political outcome in 2020,” he wrote.
The Fed rejected the suggestion that it would play politics with monetary policy.
“The Federal Reserve’s policy decisions are guided solely by its congressional mandate to maintain price stability and maximum employment. Political considerations play absolutely no role,” Fed spokeswoman Michelle Smith said in an e-mailed statement.
Pushback from analysts and economists came thick and fast.
“Bill Dudley’s remarks are not only misguided, but also dangerous coming from a former top Fed official,” said Gregory Daco, chief US economist at Oxford Economics. “The Fed doesn’t have the luxury to stand idle in the face of a slowing economy.”
Jared Bernstein, who served as former US vice president Joe Biden’s chief economist, said on Twitter that to “do what Dudley suggests compromises the Fed’s independence. Also, it could easily backfire as Trump often doubles down when challenged.”
Fed Chairman Jerome Powell and his colleagues have been careful to not criticize the US president’s trade policy choices, and they insist that their decisions are blind to politics.
However, they have made clear that the uncertainty being created by the escalating dispute with China, plus Trump’s on-again-off-again threat of tariffs against Mexico, and allies in Europe and Japan, were dampening US business investment and had cooled global growth.
Powell, in a speech on Friday last week in Jackson Hole, Wyoming, signaled that the Fed was open to cutting interest rates again next month to help offset the headwinds from a cooling world economy, while cautioning that there are “no recent precedents to guide any policy response to the current situation.”
Dudley’s suggestion “would be the fastest way to get stuck in the political fray,” Megan Greene, a senior fellow at Harvard’s Kennedy School of Government, said in an interview on Bloomberg Radio.
“I think it’s worth pointing out that there’s not a whole lot of water between the Republicans and the Democrats on trade,” she said.
Neil Dutta, head of economics at Renaissance Macro Research, agreed with that in a note to clients titled “Dudley Deep State,” writing that “the Fed cannot be seen as picking sides.”
Trump has relentlessly assaulted the Fed for raising interest rates last year and not cutting them fast enough for his liking.
He stepped that up a notch on Friday last week, calling Powell an “enemy” of the US on a par with Chinese President Xi Jinping (習近平) — an unprecedented public accusation from a US president about someone he picked for the job.
US Secretary of the Treasury Steven Mnuchin tried to walk that back on Sunday, saying that Trump did not mean it literally.
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