Former Fed official says bank shouldn’t cut rates and risk helping Trump

The former president of the Federal Reserve of New York argued Tuesday that the central bank should withhold stimulus from the economy as leverage to end President Trump’s trade war with China.

Bill Dudley, who led the New York Fed from 2009 to 2018, wrote that the bank should “refuse to play along” with Trump’s trade war by cutting interest rates and should instead allow the economy to slow and hinder the president’s odds of reelection.

“Central bank officials face a choice: enable the Trump administration to continue down a disastrous path of trade war escalation, or send a clear signal that if the administration does so, the president, not the Fed, will bear the risks — including the risk of losing the next election,” Dudley wrote in an op-ed for Bloomberg News.

{mosads}Dudley’s argument is a remarkable contrast from the conspicuously nonpolitical commentary usually offered by current and former Fed officials. The central bank system was designed to be independent of the administration so it could foster maximum employment and stable prices without political influence.

But Dudley, who for a decade was the second-ranking official on the Fed’s rate-setting committee, argued that Trump’s protectionist trade policies and repeated attacks on the bank calls for a new adversarial approach.

“Trump’s reelection arguably presents a threat to the U.S. and global economy, to the Fed’s independence and its ability to achieve its employment and inflation objectives,” Dudley wrote.

“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.”

Dudley’s call to arms comes amid unprecedented pressure from Trump on the Fed to aid his trade agenda with cheaper money. The president has accelerated his attacks on the Fed and Chairman Jerome Powell over the past month as the global economy slows while his trade war with China escalates.

“Do I want him to resign? Let me put it this way: If he did, I wouldn’t stop him,” Trump told reporters Friday after he called Powell an “enemy” on Twitter earlier in the day.

“I don’t think he’s much of a chess player. But I’ve got him,” Trump said of his handpicked Fed chairman.

Powell drew Trump’s ire earlier Friday when he said that while the Fed may soon cut rates to fend off an economic downturn, the central bank cannot and should not attempt to wage Trump’s trade war.

“Setting trade policy is the business of Congress and the administration, not that of the Fed,” Powell said at the Fed’s annual summit in Jackson Hole, Wyo.

“While monetary policy is a powerful tool that works to support consumer spending, business investment and public confidence, it cannot provide a settled rulebook for international trade.”