Federal Reserve Chairman Jerome Powell is starting to “push back” on President Donald Trump’s constant criticism, and that’s a good thing, said former New York Fed President William Dudley on Monday.
In an interview on Bloomberg Television, Dudley said he had long believed the Fed needed to make it clear that the “major risk” to the U.S. economy was coming from the White House trade policy and not the central bank.
Trump is trying to have it both ways — pursing a risky trade policy with China and blaming the Fed when the economy suffered, Dudley said.
“My view is that the Fed needed to make it very clear that the major risk to the economy is trade policy because it is creating uncertainty about investment and supply-chains, and the Fed needs to make it clear that monetary policy can only do so much about that,” Dudley said.
He said he was happy with Powell’s comments at his news conference, where the chairman talked about uncertainty about trade.
“I think the Fed has made it more clear over the past few weeks. That’s the kind of pushback I thought was desirable,” Dudley said.
Dudley created a firestorm earlier in the month when he suggested in a blog-post the Fed might take Trump’s 2020 election prospects into consideration when setting interest-rate policy.
Dudley has tried to clarify this remark, saying in the Bloomberg interview he did not want Powell and his colleagues to take the re-election into account.
Read: Dudley: I picked a fight with Trump because the Fed didn’t stand up for itself
Dudley said that the Fed has already become “politicized” from the president’s tweets.
He cited a new academic study, released Monday by the National Bureau for Economic Research, that concluded the president’s tweets were causing investors to lower their expected path for interest rates.
“People are not sure now if the Fed is easing because that is the appropriate policy path or because of pressure from the president,” he said.
Dudley said he had confidence in Powell.
He said there is no big split at the Fed.
Some Fed officials want to cut rates to take out insurance while others want to see more weakness before moving, he said.
Dudley said rate cuts help the economy on the margin even if they are not well suited to mitigate trade uncertainty.
Rate cuts help the stock market and the bond market, which supports growth and takes upward pressure off the dollar, he said.
The Dow Jones Industrial Average DJIA, +0.06% was up modestly on Monday. The index fell last week, snapping a three-week winning streak.