Bill Dudley, former president of the Federal Reserve Bank of New York, has given some great advice to the Central Bank, telling them explicitly that they should not bail out Trump when Trump’s ridiculous actions tank the stock market and the national economy. I truly hope that Mr. Powell and the other Fed members take this sound advice.
From the Bloomberg article as cited in Raw Story:
“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?” he wrote before advising, “If the ultimate goal is a healthy economy, the Fed should seriously consider the latter approach.”
I’m in no way an economist (I’m a retired environmental consultant), but it seems incongruous (to put it mildly) that a President would simultaneously state, as Trump has, that we currently have the greatest economy the world has ever seen, while also calling on the Fed to make a draconian interest rate cut of 100 basis points right now.
And who would have ever thought we’d live in a world where the President of the United States would state in writing that the Chairman of the Federal Reserve (one that he appointed no less!) was an enemy of the country.
Dudley’s article goes on to state:
“According to conventional wisdom, if Trump’s trade war with China hurts the U.S. economic outlook, the Fed should respond by adjusting monetary policy accordingly — in this case by cutting interest rates. But what if the Fed’s accommodation encourages the president to escalate the trade war further, increasing the risk of a recession?” he asked. “The central bank’s efforts to cushion the blow might not be merely ineffectual. They might actually make things worse.”
We live in a truly bizarre world. One wherein the collective world wealth can increase or decrease by trillions of dollars in an hour based solely on some nonsense that the President of the United States tweets.
Given that cutting the interest rate is a key tool that the Fed uses to stimulate the economy when a recession does hit, one has to ask what Trump’s plan would be to deal with a recession if one occurs after the Fed has already drastically reduced interest rates like he’s requesting. I’m certain his answer would be that by cutting rates drastically the Fed would be preventing a recession from occurring in the first place, but that’s a bet no sane leader would take.