But 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 U.S. business investment and had cooled global growth.
Powell, in a speech Friday in Jackson Hole, Wyoming, signaled the Fed was open to cutting interest rates again next month to help offset the headwinds from a cooling world economy, while cautioning that 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, actually.”
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 central bank for raising interest rates last year and not cutting them fast enough for his liking. He stepped that up a notch on Friday, calling Powell an “enemy” of the U.S. on a par with China’s leader -- an unprecedented public accusation from a U.S. president about someone he picked for the job . Treasury Secretary Steven Mnuchin tried to walk that back on Sunday, saying the president didn’t mean it literally.
Dudley’s comments on the Fed not enabling Trump’s trade war articulate a sentiment that’s been growing since the president announced additional tariffs against China on Aug. 1, one day after the Fed cut interest rates for the first time in more than a decade.
Dudley “is dead right” that the Fed shouldn’t cushion trade impacts, said Roberto Perli, a partner at Cornerstone Macro LLC. “The risks to the outlook that are quite evident right now have nothing to do with interest rates being too high and a lot to do with trade tensions and unprecedented policy randomness depressing household and business confidence.”
At the same time, Perli added that political thrust of Dudley’s column was an “extreme and probably unwise view because it definitely would politicize the Fed forever.”
This article provided by Bloomberg News.