Bill Dudley, a former president of the New York Federal Reserve, made waves this morning with a column in Bloomberg Opinion arguing that the Fed should make its monetary-policy decisions on a political basis:
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. . . . 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. . . . 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.
Thankfully, the Fed has issued a statement publicly rejecting Dudley’s advice, but it’s worth pointing out how irresponsible that advice is. Yes, Donald Trump cares little for the norm of an independent Fed. He wants it to jettison its standard operating procedure and pursue a monetary policy that would be advantageous in the trade war with China, and says as much on Twitter almost daily. That’s bad, because a country with an independent central bank is a stabler one. But the best — the only — way for the Fed to handle the challenge Trump poses is to remain independent. Its mandate is simple: maximize employment and keep inflation under control. If it refused to follow that mandate because it didn’t like the president’s policies (let alone the president himself), it would deserve to be brought under political control.