Playing Politics With the Fed: But Bill Dudley Outdoes the President
by
William C. Dudley (YouTube screenshot)

Donald Trump continues to pressure the Federal Reserve. He’s not the only one.

“The Federal Reserve loves watching our manufacturers struggle with their exports to the benefit of other parts of the world,” he tweeted this week. “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!”

The president regards the strength of the dollar as one of the stumbling blocks toward more balanced trade. China, for instance, enjoyed a $30.2 billion trade surplus with the U.S. in June. Apart from unfair trade practices, the president accuses Beijing of manipulating their currency to inflate that trade surplus. He urges the Fed to essentially fight fire with fire by weakening the dollar — and does so in a hyperbolic manner imagining the bankers joyous over the troubles of American industry.

Presidential pressure on the Fed did not start with Donald Trump even if his hectoring strikes as something beyond the norm. Pressure on the Fed to undermine the economy to prevent a president’s re-election seems the more novel phenomenon. This occurred this week, too.

“I understand and support Fed officials’ desire to remain apolitical,” William C. Dudley, until last year the president of the Federal Reserve Bank of New York, writes. “But Trump’s ongoing attacks on Powell and on the institution have made that untenable. 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 warning shot comes not just from any publication, but from Bloomberg, one of the most important financial outlets in the world (owned by a virulent Trump critic). And the artilleryman firing the cannonball at the president not only until last year served as one of the Fed’s voting members but also as the president of its most important bank. If the president’s rhetoric strikes as unusual, the former New York Federal Reserve president’s writing seems unprecedented —weaponizing an independent entity into a tool of partisan politics.

Dudley not-so-subtly seeks to tether an independent entity to electoral concerns. He floats the idea that his former Fed colleagues should tinker with money toward the end of harming the president’s re-election bid.

“There’s even an argument that the election itself falls within the Fed’s purview,” Dudley claims. “After all, Trump’s re-election 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.”

In saying the Fed “loves watching our manufacturers struggle,” and asking, “who is our bigger enemy, Jay Powell or Chairman Xi?” Donald Trump’s criticism of the Fed transgresses the bounds of decency. Bill Dudley’s suggestion, if followed, for the supposedly independent body to act as an auxiliary of the Democratic National Committee violates law. Perhaps worse still, such a course would cause great harm to the same American people he imagines his advice ultimately helping. Who but a politically obsessed loon hopes for people to lose jobs, homes, savings, and much else just to save the White House for a favored candidate? At least when Trump meddles in the Fed’s business, he does so with an eye toward growing the economy (even if a skeptic sees that aim as tethered to his electoral aspirations).

Some people cut off their noses off to spite their faces. Bill Dudley wants to cut off the whole face.

Hunt Lawrence is a New York-based investor. Daniel Flynn is the author of six books.

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