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Former New York Fed President William Dudley on Tuesday touched the third rail for a central banker by suggesting the Federal Reserve refuse to “play along” with President Donald Trump’s trade war with China.
In an op-ed on Bloomberg, Dudley said the trade war was a “manufactured disaster-in-the-making” for the U.S. economy.
Give that the Fed’s goal is a healthy economy, the Fed should hold off interest-rate cuts to discourage the president from escalating the trade war further, Dudley suggested.
This alone is a controversial opinion. But the former Fed official went further, suggesting the Fed might consider actions that would reduce the chances of Trump’s reelection.
“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,” he said.
Megan Greene, senior fellow at the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School, said that Dudley’s suggestion would suck the Fed into the political fray.
The Fed is generally with the view that they should react to developments in the economy and not worry too much about why the economy was evolving in any particular manner.
“If consumers stop buying cars for some reason and a recession looms, the Fed is supposed to lean against that stormy wind,” said former Fed Vice Chairman Alan Blinder, in an interview with MarketWatch.
“If the stormy wind comes from the mouth of the president, the Fed is still supposed to lean against it,” Blinder said, in an interview at Jackson Hole.
“It doesn’t mean the Fed is doing the president’s bidding but sadly it will get reported that way,” he added.
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