August 27, 2019 / 6:17 PM / 3 months ago

Fed rejects call to deny Trump rate cuts; Trump keeps up pressure

SAN FRANCISCO/NEW YORK (Reuters) - The U.S. central bank on Tuesday rejected a call from a former Federal Reserve policymaker to counter President Donald Trump’s trade agenda by refusing to “play along” and denying the president the interest rate cuts he has demanded.

FILE PHOTO: The Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 27, 2019. REUTERS/Brendan McDermid

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

Earlier on Tuesday, in an opinion piece for Bloomberg News, former New York Fed President William Dudley called for the central bank to say that it will not “bail out” the administration for its “bad choices” on trade policy.

Trump has ratcheted up tariffs on China to force the world’s second-largest economy to cut a better trade deal with the United States.

Some U.S. businesses have cut spending, citing the trade war, and Fed Chair Jerome Powell has said that the resulting uncertainty poses an unprecedented challenge for the Fed.

"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," Dudley wrote here. "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."

As head of the New York Fed from 2009 to 2018, Dudley was vice-chairman of the committee that sets U.S. interest rates during critical years in the aftermath of the global financial crisis and also ran the regional bank that implements that policy through trading in the market.

Economists criticized Dudley’s op-ed, warning that the Fed ought not to decide rate policy on the basis of politics, or to use it to help or hurt a presidential candidate.

That is exactly what Trump accused the Fed of doing under Barack Obama, saying without evidence that the central bank kept rates low at the former president’s behest to prevent an economic bubble from bursting.

Trump has tweeted critically about the Fed and its leadership at least 11 times in just the last week, including on Tuesday. The Fed, Trump wrote, “has been calling it wrong for too long!”

Contacted by Reuters about the piece, Dudley said he would let the op-ed “speak for itself.”

Reporting by Ann Saphir and Trevor Hunnicutt; Editing by Dan Grebler

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