Fed Could Hit Back at Trump, a Former Top Official Suggests

WASHINGTON — A former top Federal Reserve official implied that the central bank should consider allowing President Trump’s trade war to hurt his 2020 election chances, an assertion that drew a firestorm of criticism and a rare pushback from the Fed itself.

William Dudley, the former president of the Federal Reserve Bank of New York and now a research scholar at Princeton University, said in a Bloomberg Opinion piece that “Trump’s re-election arguably presents a threat to the U.S. and global economy.” Mr. Dudley added that “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.”

It is a controversial statement, particularly coming from an official who ranked among the Fed’s most powerful policymakers as recently as 2018. It also comes at a sensitive moment for the Fed, which has been under attack from Mr. Trump and trying to assert its independence from the White House and politics in general.

“The Federal Reserve’s policy decisions are guided solely by its congressional mandate to maintain price stability and maximum employment,” Michelle Smith, a Fed spokeswoman, said when asked about the column. “Political considerations play absolutely no role.”

Mr. Trump has waged a yearlong campaign to pressure the Fed to cut rates, accusing the central bank of hurting the economy by keeping rates too high and putting the United States at a disadvantage to other nations, like China and Germany.

The Federal Reserve loves watching our manufacturers struggle with their exports to the benefit of other parts of the world,” Mr. Trump said in a tweet on Tuesday. “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 attacks have put the Fed on the defensive, prompting top officials including Jerome H. Powell, the Fed chair, to insist that the central bank sets policy to achieve economic goals without taking politics into account.

The Fed cut rates for the first time in more than a decade in July and has kept the door open to future cuts, with Mr. Powell saying the central bank is prepared to act to protect the economy against slowing global growth and as Mr. Trump’s trade fights stoke uncertainty.

Mr. Dudley essentially said the Fed should wade into politics, arguing that the central bank should consider the political ramifications of the policy decisions it makes. By lowering interest rates to offset economic harm caused by Mr. Trump’s trade war with China, Mr. Dudley said the central bank could give the White House room to ramp up trade tensions.

“The central bank’s efforts to cushion the blow might not be merely ineffectual,” he wrote. “They might actually make things worse.”

The opinion piece comes as the Fed has been under attack from Mr. Trump and trying to assert its independence from the White House and politics in general.
CreditLexey Swall for The New York Times

Fed watchers responded to Mr. Dudley’s piece with widespread concern, asserting that it could feed conspiracy theories that the central bank is trying to influence political outcomes.

“The Fed for decades has scrupulously avoided doing that, and has tried to avoid giving that perception,” said Adam Posen, the president of the Peterson Institute for International Economics. “And this isn’t some ‘deep state’ fake: They genuinely don’t want to get into it, because ultimately they are accountable to Congress.”

Mr. Trump announced an escalation of the trade war with China just a day after the Fed cut rates in July, and the concern that Fed policy is enabling the tariffs is often repeated by analysts. Michael Strain at the American Enterprise Institute said it was a valid point to raise and consider.

But Mr. Strain pushed back against the idea that the Fed’s policymakers should try to guide political outcomes.

“It’s wildly irresponsible,” he said. “The Fed is not elected; it is appointed. It has a responsibility to adhere to a narrow reading of its mandate.”

The central bank’s leadership consists of 12 regional presidents, who are selected by businesspeople and community leaders from their districts and who share four annually rotating votes on interest rates. The New York Fed president is the most powerful regional leader and has a constant vote on policy.

The rate-setting committee also includes seven governors who are nominated by the president and confirmed by the Senate. Only five of those positions are currently filled, although Mr. Trump has said he intends to nominate another two members to the Fed.

The Fed does not answer to the White House by design: It is removed from politics so that it will make better long-term decisions for the economy, rather than trying to goose the economy going into election years. It is, however, responsible to Congress, which can change the rules that govern it.

That insulation has, historically, helped to fuel criticism that the Fed is removed from the public and in the pocket of bankers. The central bank has long been the target of conspiracy theories, and popular books about it have borne titles like “Secrets of the Temple.”

More recently, the president has placed the central bank firmly in political cross hairs. In a Twitter post last week, he asked whether Mr. Powell or President Xi Jinping of China was a “bigger enemy” of the United States. Mr. Trump has reportedly considered firing or demoting Mr. Powell in the past, and he recently told reporters that he would accept Mr. Powell’s resignation if it were offered.

Despite that pressure campaign, Fed officials have repeatedly pushed back against the idea that they would in any way take the White House’s comments or potential actions into account when setting policy.

“We’re never going to take political considerations into account or discuss them as part of our work,” Mr. Powell said at a news conference in January. “We’re human. We make mistakes. But we’re not going to make mistakes of character or integrity.”

How World Leaders Ruined the Global Economy

They took the best growth picture in a decade and put us in danger of recession.

Why are so many key global leaders pursuing so many stupid economic policies?

As recently as January 2018, the International Monetary Fund issued one of its most upbeat economic forecasts in recent years, extolling “broad based” growth, with “notable upside surprises.”

By last month, the fund had sliced its forecast for expansion this year to 3.2 percent — a significant falloff from the 3.9 percent projection reiterated just six months earlier — and had pronounced the economic picture “sluggish.” American investors are more concerned; the bond market is sounding its loudest recessionary alarm since April 2007.

The deterioration in the economic picture is not the consequence of irresponsible behavior by banks or a natural disaster or an unanticipated economic shock; it’s completely self-inflicted by major world leaders who have delivered almost universally poor economic stewardship.

The trade war initiated by President Trump sits firmly atop the list of bad policies. But Brexit has tipped Britain into economic contraction. With European governments unwilling to pursue structural reforms, the continent is barely growing. President Xi Jinping of China has focused on standing up to Mr. Trump and solidifying his own power. After a promising start reforming the economy, India’s prime minister, Narendra Modi, has turned instead to oppressing his country’s Muslim minority.

None of this was necessary. As the January 2018 I.M.F. report indicated, the world economy was firing on all cylinders — “the broadest synchronized global growth upsurge since 2010” — as jobs were being added and inflation remained subdued.

Yes, Mr. Trump’s trade war and Brexit loomed, but amid hope that the former would prove empty and the latter would be softened.

Not so today.

Often against the recommendations of his more sensible advisers, Mr. Trump has implemented the country’s most protectionist actions since the 1930s. As a result, world trade has begun to fall for the first time in a decade, with noticeable economic impact. Last week, Goldman Sachs cut its already modest projections for fourth-quarter growth to 1.8 percent from 2 percent.

That’s a far cry from the “4, 5, 6” percent that Mr. Trump talked about just before his tax cut passed.

Nor has that been Mr. Trump’s only misstep in economic policy. Instead of nurturing growth with important investments like a robust infrastructure program, Mr. Trump deployed his political capital to secure tax cuts that disproportionately favored business and the wealthy.

The “sugar high” they produced quickly wore off. And now, instead of developing better policies, the president has chosen to attack the Federal Reserve, whose independence is cherished by investors, business people and economists.

Boris Johnson, Britain’s new prime minister, abandoned his predecessor’s notion of a “soft Brexit” that would have maintained some ties with the European Union. Instead, he reaffirmed his promise that his country would leave the E.U. on Oct. 31 with or without a deal. The pound quickly fell to its lowest level against the dollar since 1985. (It has since recovered slightly.)

Then there’s China. By virtue of both its remarkably fast industrialization and its protectionist policies, the nation has long been a trade threat. But four years ago, the government issued its “Made in China 2025” economic manifesto, which put in writing China’s plans to attain a leadership position in key new sectors, including robotics, pharmaceuticals and aerospace.

The notion of China using its state power to take on important American and European industries instead of pursuing market reforms set off alarm bells across the political spectrum and provided a concrete underpinning for Mr. Trump’s trade confrontation.

Mr. Xi, rather than acknowledging China’s protectionist practices, has proved unwilling to accept a new trade agreement with effective enforcement provisions. That has raised doubts about whether China is seriously interested in reforming its unfair trade practices — keeping key markets fully or partially closed, using state subsidies to favor its companies, forcing American companies to transfer technology to China and the like.

Of course, at least in the world’s democracies, voters bear substantial responsibility for electing these inadequate leaders. The rise of populism as a reaction to disaffection about economic and social conditions has been well documented as a principal driving force.

Occasionally, good choices have been made, such as the election of President Emmanuel Macron of France. But even that has not led to progress; public support for Mr. Macron turned to opposition when he instituted the much needed policy changes that he promised.

Any chief executive officer who botched his or her job as badly as most of these leaders have would be fired. Let’s hope that voters come to that realization when given the chance.

Fears of Missiles, and Words

But Mr. Trump is president of the United States, and if prudent, disciplined leadership was ever required, it is now. Rhetorically stomping his feet, as he did on Tuesday, is not just irresponsible; it is dangerous. He is no longer a businessman trying to browbeat someone into a deal. He commands the most powerful nuclear and conventional arsenal in the world, and any miscalculation could be catastrophic.

.. This is a president with no prior government or military experience who has shown no clear grasp of complex strategic issues.

.. his inflammatory words were entirely improvised and took his closest associates by surprise. Intentionally or not, they echoed President Harry Truman’s 1945 pledgeto inflict a “rain of ruin from the air” if Japan did not surrender after the first atomic bomb was dropped at Hiroshima, which made them seem even more ominous.

It is hard to believe that they would condone Mr. Trump’s risky approach, and on Wednesday, the damage control began.

  • While Mr. Mattis reinforced his boss’s belligerent tone and expressed confidence that North Korea would “lose any arms race or conflict it initiates,” he more prudently focused on the North’s concrete “actions” rather than on vague threats and voiced support for a diplomatic solution.
  • Secretary of State Rex Tillerson said he saw no reason to believe that war was imminent.
  • Meanwhile, some White House aides reportedly urged reporters not to read too much into the president’s remarks.

.. Since Truman, presidents have largely avoided the kind of militaristic threats issued by Mr. Trump because they feared such language could escalate a crisis.

.. Mr. Trump has again made himself the focus of attention, when it should be Kim Jong-un, the ruthless North Korean leader, and his accelerating nuclear

.. Engaging in a war of words with North Korea only makes it harder for both sides to de-escalate.

The New York Times Corrects Its Editorial, but It’s Still Wrong

While the new language removes the actual libel, it’s still irresponsible and indefensible. Since there was absolutely no link between anyone’s political rhetoric (much less Sarah Palin’s) and Loughner’s crime, why continue to mention Palin? She was irrelevant to that terrible act.  The editorial board continues to go out of its way to smear people it despises, this time through slimy guilt-by-association.

.. I’m the absolute last person to believe that vicious rhetoric or acts of violence are exclusive to the Left. White supremacists have been committing acts of violence and murder at an alarming rate, but the Times just can’t resist the temptation to demonize even mainstream conservative voices. Remember, this is the same paper that tried to link Omar Mateen’s jihadist attack in Orlando to Republican policies on, for example, transgender bathroom access.