US central bank risks reputation with Americans if it pulls its punches with the White House
William Dudley, the immediate past president of the Federal Reserve Bank of New York, recently stirred up a hornet’s nest when he called for the Fed to consider the impact of its policies on the 2020 presidential election. In fact, Dudley performed a valuable public service by observing that Fed policy can influence politics, sometimes with profound implications for the course of the US. But that doesn’t mean his recommendations were on target.
Dudley’s logic was straightforward. If the Fed cuts interest rates in response to Donald Trump’s disruptive trade policy actions, the president may be encouraged to resort to more of the same. Trump believes that the US and China are locked in a trade war to the death. But he has acknowledged that the stock market reacts negatively to his tariff threats, that trade-related uncertainty weakens growth and that this damages his re-election prospects.
Link : The Federal Reserve must be honest about Trump’s trade war