The Daily Update - Former Fed President Dudley Takes Trump Feud to the Op-Ed Pages

If you were wondering whether months of Trump tweets against the FOMC had got under the skin of anyone in the Fed, then yesterday’s op-ed piece by William Dudley for Bloomberg gives good reason to believe they have. If you haven’t seen the article this is how the former New York Fed President concluded his fiery rebuttal, “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. 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. 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.”

Hidden within Dudley’s unusually expressive criticism – relative to the Fed’s generally dispassionate tone – was an important and sincere message that central bank independence is both vulnerable and limited. This is indeed worth highlighting and defending, but to publicly announce that the Fed should incorporate how its policy affects the Presidential elections within its mandate, is itself potentially more damaging to the Fed’s independence and has received general reproach for overreaching. The Fed was quick to reject Dudley’s stance, clarifying that “The Federal Reserve’s policy decisions are guided solely by its congressional mandate to maintain price stability and maximum employment… Political considerations play absolutely no role.”

Since Powell took the helm of the Fed he has been careful to maintain an apolitical guise. But that isn’t to say that Dudley is alone in his frustrations, and perhaps Powell and others at the Fed are happy for Dudley to fall on his own sword and attract away some of Trump's criticisms. Alas; Trump’s next tweet ignored Dudley’s comments, focusing on blaming a struggling manufacturing sector on the Fed “calling it wrong for too long!”.

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