Former NY Fed President Bill Dudley says his op-ed on Federal Reserve independence was a 'thought experiment' and said he was not suggesting the Fed act to stop Trump’s re-election chances.
BILL DUDLEY: The piece was basically a thought experiment basically saying that if one thought that your actions were, you know, going to enable or facilitate a bad policy, would you want to actually take those actions? That's what I was actually saying. And it was a thought experiment. I wasn't saying that the Federal Reserve should behave in a way that somehow tries to affect the electoral-- election outcome. That'd be totally inappropriate. The Fed needs to set monetary policy based on giving dual mandate objectives. And I believed that then, and I believe that now.
- And I guess that brings up though right now because as we kind of talked about the Fed officials kind of pressing on fiscal policy makers to do something, it's not necessarily to the exact content of what you were writing about last August. But it does bring up, what is the proper interaction between monetary policy and fiscal policy during times like these? Because yes, there is supposed to be Fed independence, but right now we have Steven Mnuchin and Chairman Powell working together hand in hand to engineer this crisis. Now obviously these are different times.
So what is the appropriate balance of the interaction between the Fed and fiscal policymakers, even outside of a crisis times? We know that there's a congressional liaison office at the Fed. They had a hand in the engineering even of the minutia in Dodd-Frank during 2010. So I guess what's the proper balance between the communication and the level of coordination between fiscal and monetary policy makers?
BILL DUDLEY: I think you want to have good communication so you know what's the Treasury's thinking and what the Fed's thinking. I think in the current environment there's not a real conflict. The goals of both the fiscal authorities and the monetary authorities are to try to support the economy and generate a sustainable economic recovery. I think the independence of the Federal Reserve comes into question when the political timetable leads to political pressure to pursue a program of interest rates that are inconsistent with the Fed's objectives in terms of employment and inflation.
So if you got into a situation where inflation was rising yet the political leadership in Washington was trying to put pressure on the Fed to keep rates low despite the fact that inflation was rising, becoming problematic, that's when the Federal Reserve's independence becomes at risk. But I don't think there's a real issue right now in terms of the Fed's independence. I don't see a conflict. What the Fed wants and what the administration and Congress wants are the same thing, [INAUDIBLE] working on recovery.