New York (CNN Business)The Federal Reserve shouldn’t cut interest rates, because that only enables President Donald Trump to pursue a mistaken trade war, according to Bill Dudley, a recent top official at the central bank.

“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?” wrote Dudley, the former president of the New York Fed, in an opinion column on Bloomberg Thursday. “If the ultimate goal is a healthy economy, the Fed should seriously consider the latter approach,” he added.Dudley served as vice chairman of the rate-setting Federal Open Market Committee from 2009 through 2018, starting during the height of the Great Recession. He wrote that he understands the Fed’s desire to say out of politics and to respond to the economic conditions as they exist. But the column said the Fed will do more long-term damage to the economy if it gives Trump what he wants with lower rates.”What if the Fed’s accommodation encourages the president to escalate the trade war further, increasing the risk of a recession? The central bank’s efforts to cushion the blow might not be merely ineffectual. They might actually make things worse,” he wrote.Read MoreDudley urged that Fed officials should 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.”Powell acknowledges growing risk of slowdown, but gives no hint about rate moves for SeptemberPowell acknowledges growing risk of slowdown, but gives no hint about rate moves for SeptemberPowell acknowledges growing risk of slowdown, but gives no hint about rate moves for SeptemberThe Fed cut its benchmark interest rate a quarter percentage point on August 1, the first cut since 2008. But President Trump has repeatedly attacked the Fed and Chairman Jerome Powell, whom he appointed, for not doing enough to stimulate the economy. Trump has suggested that he might remove him from office, but it is not clear the president has the power to take that action over policy disagreement. Dudley said keeping rates steady or raising them would have the benefit of reasserting Fed independence. It would also conserve “much needed ammunition” for the Fed to use to cut rates in the future when the economy may be in worse shape.Dudley suggested that the Fed might even want consider making the economy weaker ahead of the election as part of its policy, because that would hurt Trump’s reelection chances.”There’s even an argument that the election itself falls within the Fed’s purview,” he writes. “After all, Trump’s reelection arguably presents a threat to the US 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.”The White House declined to comment on the column.– CNN’s Betsy Klein contributed to this report

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https://www.cnn.com/2019/08/27/economy/bill-dudley-fed-trump/index.html

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