A former top Federal Reserve official suggested the central bank reject interest-rate cuts that would help Donald Trump’s 2020 reelection prospects, drawing swift criticism that such an approach would jeopardize the independence of a Fed already under fierce attack from the U.S. president.
The Bloomberg Opinion column by former New York Fed President Bill Dudley, published Tuesday, argued the central bank risks enabling further escalation by the president in the trade war 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 reelection arguably presents a threat to the U.S. and global economy,” wrote Dudley, who headed the New York Fed from 2009 to 2018 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.”
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 emailed statement.
Pushback from analysts and economists also 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 U.S. 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 Vice President Joe Biden’s chief economist, posted 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.”
Jared Bernstein
@econjared
I agree with the thrust of the critique that to do what Dudley suggests compromises the Fed’s independence. Also, it could easily backfire as Trump often doubles down when challenged like this. Far too risky a play, in my view.
Fed Chairman Jerome Powell and his colleagues have been careful to not criticize the president’s trade policy choices, and they insist that their decisions are blind to politics.