Trump’s Reelection a "Threat to the U.S. and Global Economy"

William Dudley, former NY Fed President, wrote a Bloomberg blistering editorial attacking President Trump.

Please consider The Fed Shouldn’t Enable Donald Trump by William Dudley.

U.S. President Donald Trump’s trade war with China keeps undermining the confidence of businesses and consumers, worsening the economic outlook. This manufactured disaster-in-the-making presents the Federal Reserve with a dilemma: Should it mitigate the damage by providing offsetting stimulus, or refuse to play along?

If the ultimate goal is a healthy economy, the Fed should seriously consider the latter approach.

Fed Chairman Jerome Powell has hinted that he is aware of the problem. At the central bank’s annual conference in Jackson Hole last week, he noted that monetary policy cannot “provide a settled rulebook for international trade.” I see this as a veiled reference to the trade war, and a warning that the Fed’s tools are not well suited to mitigate the damage.

Yet the Fed could go much further. Officials could state explicitly that the central bank won’t bail out an administration that keeps making bad choices on trade policy, making it abundantly clear that Trump will own the consequences of his actions.

Such a harder line could benefit the Fed and the economy in three ways. First, it would discourage further escalation of the trade war, by increasing the costs to the Trump administration. Second, it would reassert the Fed’s independence by distancing it from the administration’s policies. Third, it would conserve much-needed ammunition, allowing the Fed to avoid further interest-rate cuts at a time when rates are already very low by historical standards.

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.

Trump Responds

That response is very mild. I expect more later.

Trump a Threat to the Global Economy?

Of course he is. Trump is clueless about trade and monetary policy.

Central banks are also clueless. Three consecutive economic bubbles are proof enough. So Trump is correct when he calls the Fed clueless.

Moreover, there should not be a Fed in the first place.

But history shows that when governments take over monetary policy, hyperinflation is frequently the result.

Poll: Trump a Threat?

Poll: Trump More of a Threat Than the Fed?

Mike "Mish" Shedlock

Comments (107)
No. 1-25
spitituscanus
spitituscanus

your anti Trumpism has deranged your thinking

2banana
2banana

So the Fed admits it will meddle in elections.

Will a special prosecutor with an unlimited budget be appointed to look into this?

Indictments? Jail? Testimony in front of congress?

When did the role of the Fed include meddling in elections?

Or does it not count if they only meddle to help democrats?

Webej
Webej

Poor old USA. Responsible for half of all military spending globally and entitled to seignorage on the world's monetary base, but being the lone kid picked on by the rest of the class. So unfair.

Tony Bennett
Tony Bennett

Rule #1 ... Never Trust a (ex )Goldman Sachs-er

Rule #2 ... See Rule #1

Mish
Mish

Editor

Kurtellis nails it: "mish has always been pro free trade, anti-government meddling in the economy and pro balanced budget."

My statements are about economic policy. Trump is an outright moron on trade.

Moreover - he did not get us out of Afghanistan and is warmongering Iran and Venezuela

His budget is a disaster

Finally, I voted for him and would do so again vs Hillary