A former top US central banker leapt into the political fray on Tuesday, calling on the Federal Reserve to oppose President Donald Trump’s reelection effort next year.
Bill Dudley, the influential former president of the New York Federal Reserve Bank, also said the Fed should not “enable” Trump’s escalating trade war with China by lowering interest rates.
The stunning arguments in a Bloomberg opinion column flew in the face of efforts of current Fed officials to remain strictly neutral, above the political fray, despite Trump’s intense year-long campaign to demand easier monetary policy.
But Dudley said the outcome of the 2020 presidential elections was arguably “within the Fed’s purview” because a second Trump term represented a threat to the global economy as well as the Fed’s political independence and policy mandates.
“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.
Trump already blames the Fed, rather than trade policy, for the slowing economy and has demanded drastic cuts in interest rates in his relentless, nearly daily attacks.
Last week he called Fed Chairman Jerome Powell an “enemy” and on Tuesday tweeted that central bankers loved “watching our manufacturers struggle” to export to markets with easier monetary policy.
Powell, when asked, has consistently brushed off Trump’s near-daily invective, saying Fed officials do not take politics into account when deciding on policy.
Earlier this month, the Fed cut interest rates for the first time in more than a decade even though unemployment remains at historic lows, amid growing concerns about the global economy.
Investors overwhelmingly expect the Fed to deliver at least a 25-basis-point rate cut next month as the economy slows and the US-China trade war drags into its second year.
But Dudley, who also served as the vice chairman of the Fed’s rate-setting Federal Open Market Committee, said in his op-ed that providing more stimulus could encourage Trump to escalate a “disastrous” trade war with China, which deteriorated sharply last week.
– Not politicizing –
“The central bank’s efforts to cushion the blow might not be merely ineffectual. They might actually make things worse,” he wrote.
Instead the Fed should clearly state that it will not cut rates to send a signal that Trump will own the risks created by his trade wars — “including the risk of losing the next election,” Dudley said.
Dudley retired from his post as New York Fed president last year and is currently a senior research scholar at Princeton University.
Richard Fisher, former president of the Dallas Federal Reserve Bank, said Tuesday the Fed’s moves were decided purely on the merits and were not reactions to Trump’s actions.
“I am convinced that they are not politicizing,” he told CNBC, adding that he felt Dudley had gone “a little too far” in his opinion piece.
On the other hand, Fisher warned that policymakers who bent to the will of the White House risked the scornful judgment of history.
He cited the example of former Fed Chairman Arthur Burns who, was bullied into easing policy by President Richard Nixon, helping ignite runaway inflation.
Burns “prostituted himself” to Nixon and became “the least respected of all former Fed chairs,” Fisher said.