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.”
As Harvard, Notre Dame, Georgetown and others pledge to increase diversity, admitting the children of alumni at higher rates complicates their efforts
Top colleges have pledged to become more socioeconomically diverse, but the admissions edge many give to children of alumni may make that goal harder to achieve.
.. At the University of Notre Dame, the University of Virginia and Georgetown University, the admission rate for legacies is about double the rate for the overall applicant pool, according to data from the schools. At Princeton University, legacies are admitted at four times the general rate, or roughly 30% compared with about 7% overall over the past five years, the school says.
Legacy applicants at Harvard University were five times as likely to be admitted as non-legacies, according to an analysis of admissions data from 2010 through 2015. The numbers—33.6% for legacies and 5.9% for those without parental ties—were submitted in a June court filing for a case claiming Asian students are being discriminated against in the name of greater diversity at the school.
.. Diversity initiatives have led to complaints by white students that minority students have a leg up. Meanwhile, highly qualified Asian students say they should get more slots based on academics. Both say long-standing traditions like legacy admissions soak up coveted spots.
Advocates for considering legacy status argue that favoring the children—and, in some cases, grandchildren—of graduates helps maintain an engaged and generous alumni base and lets students serve as ambassadors to new campus arrivals.
Cornell University President Martha E. Pollack has said legacy admissions help perpetuate “a Cornell family that goes on for generations.” In an interview with the student newspaper in May, she said the practice isn’t about giving preference or an advantage to legacies, but such a designation is one of many “balancing factors.”
.. “I really don’t see how our best universities can continue to justify this practice,” said William Dudley, Federal Reserve Bank of New York president, in an October speech. “Such an approach only preserves the status quo and constrains economic mobility.”
A handful of elite schools, including the Massachusetts Institute of Technology and California Institute of Technology, don’t consider legacy status in admissions.
.. calling for a dozen schools, including Brown University, Duke University, Swarthmore College and Emory University, to review their legacy admission policies.
.. Legacy preferences, which historians say were originally developed to keep Jewish students from prestigious colleges in the early 1900s, generally benefit applicants who are wealthy and white
.. Calling legacy admissions a “classist, racist institution,” Brookings Institution senior fellow Richard Reeves said, “There is an inescapable hypocrisy of an institution saying, ‘We are going to be open and meritocratic,’ and maintaining a hereditary privilege.”
.. Legacies made up roughly 5% of the applicant pool and 15% of this fall’s entering class at the University of Virginia.
.. “ ‘Special consideration’ refers to the longstanding practice of the dean of admissions and his staff carefully reviewing applicants whose parents or grandparents are alumni before final decisions are made
.. say much of the differential in admission rates can be explained by legacy applicants’ higher academic credentials and cultural fit. They say legacies also enroll at higher rates than other accepted students.
Some academics have called for the Fed to offer its own digital currency. They believe it would afford the central bank better control over the economy by tweaking interest rates at the consumer level, bypassing fickle financial markets that often work at cross-purposes with Fed policy aims.
Supporters of official digital money say the central bank could end up being pushed off the sidelines if private efforts eventually succeed on a mass scale.
When it comes to change, Mr. Dudley said alterations of existing laws and regulations should be done with a “paring knife, rather than with a meat cleaver.” Maintaining higher capital and liquidity requirements for too-big-to-fail banks remains critical, he said.
Central clearing for derivatives securities should also be retained, and a continuing role for the Fed as an important regulator remains critical. Mr. Dudley also wants the Financial Stability Oversight Council to keep its ability to name nonfinancial firms as systemically important and eligible for increased government oversight.
.. the Volcker rule, which limits certain types of trading for banks, should get a “less burdensome” implementation.
