WASHINGTON, Sept. 4 (Xinhua) -- A former senior official of the U.S. Federal Reserve said Wednesday that one of the points he wanted to address in an earlier opinion piece urging the Fed not to succumb to political pressure was that the central bank should be cautious that it doesn't "inadvertently enable" the Trump administration's "trade war with China."
Bill Dudley, former president of the Federal Reserve Bank of New York, wrote in an article published by Bloomberg News that the combination of the U.S. trade dispute with China and President Donald Trump's attack on the Fed "threatened to put the central bank in an untenable position."
Claiming that the president "was shifting responsibility for the downside risks from his trade war onto the Fed," Dudley, now a senior research scholar at Princeton University's Center for Economic Policy Studies, said "the Fed needs to be cautious that it does not inadvertently enable the president's trade war with China."
"In my judgment, there is a risk that the Fed, by easing, might encourage the president to take even more aggressive actions on trade and in raising tariffs," the economist said. "This might create even greater downside risks for the economy that monetary policy might prove ill-suited to address."
Dudley suggested that the Fed be more explicit that "the greatest risk to the economy was the uncertainty created by the U.S. trade war with China." Doing so, he added, would increase Trump's stake in the downside risk the U.S. economy faces.
"As a result, with more at stake, the president might be more attentive to the risks the trade war posed to the U.S. economy," said Dudley.
In his Aug. 27 article also carried by Bloomberg, Dudley called the Trump administration's trade policy toward China a "manufactured disaster-in-the-making," calling on the Fed to "refuse to play along" with Trump's trade policy, rather than "mitigate the damage by providing offsetting stimulus."
That article triggered immediate repercussion, with Fed officials quickly dismissing Dudley's assertions.
"The Federal Reserve's policy decisions are guided solely by its congressional mandate to maintain price stability and maximum employment," Fed spokeswoman Michelle Smith was quoted by the Wall Street Journal as saying. "Political considerations play absolutely no role," she added.
Dudley in Wednesday's article clarified that he didn't suggest that the Fed should turn a blind eye to a potential forthcoming recession, or influence the outcome of the 2020 presidential election.
"I was not suggesting that the Fed should do so regardless of the consequences for the economy or that it should stand by and allow a recession. And I was not trying to suggest that the Fed should take sides in the upcoming election," said Dudley, who has also served as vice chairman of the Fed's rate-setting Federal Open Market Committee.
