Former New York Fed President Bill Dudley asks the central bank not to help President Donald Trump fight his trade war with China.
In a sharply worded comment on its one-time counterparts, Dudley Fed officials urged not to simply lower interest rates as a backstop while the president continues his tiff-for-tat customs battle with the Chinese who have escalated in recent days.
"Central Bank officials face a choice: allow the Trump administration to continue down a disastrous path to escalating trade war, or send a clear signal that if the administration does, the president, not the Fed, will bear the risk ̵
Dudley went so far as to suggest that the Fed could – and should – try to influence the next election against Trump.
After all, Trump's reelection is undoubtedly a threat to the United States and the world economy, to the Fed's independence and its ability to achieve its employment and inflation targets, "he wrote." If the goal of monetary policy is to achieve the best economic result in the long run term, Fed officials should consider how their decisions will affect political performance by 2020. "
Trump has taken on the Fed repeatedly, last week even equating Governor Jerome Powell with China's President Xi Jinping and asking in a tweet: "Who is our bigger enemy?"
The president demands sharply lower interest rates, which he says are necessary to keep the economic expansion going and to help fight the trade war.
Dudley said the Fed should " refuse to cooperate "and could" go further "than Powell's conclusion last week that monetary policy may not be effective in averting the financial damage from tariff rates.
n can explicitly state that the central bank will not bail on an administration that continues to make poor choices in trade policy, making it clear that Trump will own the consequences of his actions, "he wrote.
This would send a signal that the Fed will not be complicit in the trade war and at the same time preserve "much-needed ammunition" for interest rate cuts on the road that may be needed to fight economic recession, Dudley said.
Markets expect the Fed to approve a further 25 basis points cut to follow the one that OK had in July, the first in 11 years, and prices at almost an 80% chance of another until the end of the year.
In his speech last week in Jackson Hole, Wyoming, Powell promised that the Fed would continue to do its bit to support the economy, but did not make any concrete intentions.