Former New York Federal Reserve President Bill Dudley set off a monetary policy firestorm with a Bloomberg op-ed saying the Fed shouldn’t enable President Donald Trump’s “bad choices on trade policy” by continuing to cut rates.
“I understand and support Fed officials’ desire to remain apolitical. But Trump’s ongoing attacks on Powell and on the institution have made that untenable,” Dudley wrote, referring to Fed Chair Jerome Powell. “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.”
The head of the New York Fed is a permanent voting member on the policy committee and typically viewed as the most powerful president in the Fed system. Dudley served as the New York Fed president from 2009 to 2018, and is now a senior research scholar at Princeton University’s Center for Economic Policy Studies.
A host of economists and investors quickly weighed in on his commentary.
“Talk about the race to the bottom of poor behavior,” said Paul Schatz, president and chief investment officer at Heritage Capital, on Yahoo Finance’s On the Move. “Dudley is doing what my guess is all of them behind closed doors may be doing, but have not done publicly. He's getting down into the weeds, rolling up his sleeves, and going to fight with, essentially, Trump or the administration.”
“But Dudley has no business writing this, really. If he truly is a company man, mind your own business. Head down. The Fed should worry about what the Fed is always worried about,” said Schatz, adding that the Fed has a dual mandate, which is to worry about maximum employment and price stability. “They can't worry about what Trump may or may not do.”
Schatz wasn’t alone in his criticism.
Daniel Drezner, an economist and professor of international politics at the Fletcher School at Tufts University, called Dudley’s proposal “a horrible idea” in a tweet.
Megan Greene, an economist and senior fellow at the Harvard Kennedy School, tweeted that Dudley’s approach would have risks for the Fed:
Bill Dudley argues the Fed should lean harder against Trump and let him know they won’t bail him out of this trade war. Bill suggests its a way for the Fed to stay above the political fray, but it would be the fastest way for the Fed to get sucked into it https://t.co/yLJuWRG4mA
— Megan Greene (@economistmeg) August 27, 2019
Joseph Brusuelas, chief economist at RSM US LLP, tweeted:
I like Bill Dudley. He was an outstanding central banker. But this op-ed is misguided. The Fed should be the adult in the room & not get sucked into the political fray this will amplify the conspiracies on the right: The Fed Shouldn’t Enable Donald Trump https://t.co/PIpUbsYEI3
— Joseph Brusuelas (@joebrusuelas) August 27, 2019
Critics in particular took aim at Dudley’s final paragraph, which threw out entirely the idea that the Fed should remain apolitical:
“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, to the Fed’s independence and its ability to achieve its employment and inflation objectives. 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.”
Matthew Yglesias, senior correspondent and co-founder of Vox Media, called the Dudley op-ed “bad” but notes that partisan bias isn’t new at the Fed:
When a Democrat is in the White House, the Fed prioritizes fighting inflation.
When a Republicans is in the White House, the Fed prioritizes fighting unemployment. pic.twitter.com/QWU8ikr59g
— Matthew Yglesias (@mattyglesias) August 27, 2019
“The Federal Reserve’s policy decisions are guided solely by its congressional mandate to maintain price stability and maximum employment,” The Fed told Yahoo Finance when asked about the criticism. “Political considerations play absolutely no role.”
Meanwhile, Trump, a frequent critic of Powell, once again took the opportunity Tuesday to target the central bank.
The Federal Reserve loves watching our manufacturers struggle with their exports to the benefit of other parts of the world. Has anyone looked at what almost all other countries are doing to take advantage of the good old USA? Our Fed has been calling it wrong for too long!
— Donald J. Trump (@realDonaldTrump) August 27, 2019
Julie Hyman is the co-anchor of On the Move on Yahoo Finance.