Former NY Fed Goldmanite Dudley Attacks President Trump on Bloomberg Platform

It doesn't get any more transparent than this.

For anyone who doesn't already know, the Federal Reserve System is a private banking operation that controls the currency of the United States of America. The "System" issues "notes" at interest. The long-standing assumption is that the Fed is objective, impartial, and apolitical. Here's a taste of that "objectivism" from former NY Fed president, William Dudley.

(Bloomberg Opinion) -- 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?

If the ultimate goal is a healthy economy, the Fed should seriously consider the latter approach.

Dudley states unequivocally that the President's trade policy is harmful and that the Fed should determine how to respond. Not exactly impartial, is it?

Here's more:

The Fed’s monetary policy makers typically take what happens outside their realm as a given, and then make the adjustments needed to pursue their goals of stable prices and maximum employment. They place little weight on how their actions will affect decisions in other areas, such as government spending or trade policy. The Fed, for example, wouldn’t hold back on interest-rate cuts to compel Congress to provide fiscal stimulus instead. Staying above the political fray helps the central bank maintain its independence.

So, 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? The central bank’s efforts to cushion the blow might not be merely ineffectual. They might actually make things worse.

Fed Chairman Jerome Powell has hinted that he is aware of the problem. At the central bank’s annual conference in Jackson Hole last week, he noted that monetary policy cannot “provide a settled rulebook for international trade.” I see this as a veiled reference to the trade war, and a warning that the Fed’s tools are not well suited to mitigate the damage.

Yet the Fed could go much further. Officials could 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.

Again, Dudley appears to favor the Federal Reserve acting in a manner that runs contrary to the policy of the president. While that may be objective, it is hardly impartial...

...and it gets worse:

Such a harder line could benefit the Fed and the economy in three ways. First, it would discourage further escalation of the trade war, by increasing the costs to the Trump administration. Second, it would reassert the Fed’s independence by distancing it from the administration’s policies. Third, it would conserve much-needed ammunition, allowing the Fed to avoid further interest-rate cuts at a time when rates are already very low by historical standards.

I understand and support Fed officials’ desire to remain apolitical. But Trump’s ongoing attacks on Powell and on the institution have made that untenable. Central bank officials face a choice: enable the Trump administration to continue down a disastrous path of trade war escalation, or send a clear signal that if the administration does so, the president, not the Fed, will bear the risks — including the risk of losing the next election.

There’s even an argument that the election itself falls within the Fed’s purview. After all, Trump’s reelection arguably presents a threat to the U.S. 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.

To Dudley's globalized mind, Trump's trade policies are "disastrous" and imperil his chances at "re-election." Since when are the unelected members of the Federal Reserve experts on election politics? Dudley's remarks reek of political partisanship.

The author and editor's emails are provided here as a public service. In a sane world, Dudley's email in-box would be flooded with contrarian opinions. The world of 2019 does not seem to be particularly sane, however.

To contact the author of this story: Bill Dudley at wcdudley53@gmail.com

To contact the editor responsible for this story: Mark Whitehouse at mwhitehouse1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Bill Dudley is a senior research scholar at Princeton University’s Center for Economic Policy Studies. He served as president of the Federal Reserve Bank of New York from 2009 to 2018, and as vice chairman of the Federal Open Market Committee. He was previously chief U.S. economist at Goldman Sachs.

Other than the yield curve re-inverting and stocks reversing course midday, nothing much happened in the world of investing on Tuesday.

At the Close, Tuesday, August 27, 2019:
Dow Jones Industrial Average: 25,777.90, -120.93 (-0.47%)
NASDAQ: 7,826.95, -26.79 (-0.34%)
S&P 500: 2,869.16, -9.22 (-0.32%)
NYSE Composite: 12,474.05, -45.57 (-0.36%)

Stocks Continue Falling As March Commences With 420-Point Drop

After a brutal February, which took the Dow down by more than 1100 points, the first day of March suggested that more capital carnage may still be yet to come.

After a shaky positive start to the session, stocks quickly reversed course at midday after remarks by NY Fed head, William Dudley, and Fed Chair Jerome Powell signaled that the Fed would be pursuing three, and possibly, four, rate hikes in 2018. Accelerating the decline was the announcement by President Trump that he planned to impose 25% tariffs on imported steel and a 10% tag on imported aluminum.

Added to the losses of the last two sessions of February, Thursday's 420-point decline has ripped 1100 points off the Dow and futures are pointing to a lower open on Wall Street after stocks in Asia (NIKKEI, -542.83; Hang Seng, -460.80) were hit hard and European bourses have opened hard to the downside with Germany's DAX the biggest loser, down more than two percent at midday.

The Dow continues to cruise closer to correction territory, though it is still another 1000 points away, at 23,594, but, as seen in previous sessions, that amount of loss can occur in one or two sessions with relatively little resistance.

Current conditions suggest that economies globally are contracting, after a binge of easy credit field by central bank intervention and wanton money-printing for the past nine years. If the Fed and other central banks are convinced those policies must come to an end, an all-encompassing crash in the not-so-distant future is not out of the question.

Dow Jones Industrial Average March Scorecard:

Date	Close	Gain/Loss	Cum. G/L
3/1/18	24,608.98	-420.22	-420.22

At the Close, Thursday, March 1, 2018:
Dow Jones Industrial Average: 24,608.98, -420.22 (-1.68%)
NASDAQ: 7,180.56, -92.45 (-1.27%)
S&P 500: 2,677.67: -36.16 (-1.33%)
NYSE Composite: 12,518.73, -133.82 (-1.06%)

Stocks Slammed Globally, S&P Under 1900; Dow Drops Below 16,000

Wall Street is, at last, getting the just desserts from seven years of Fed policies that have funneled trillions of dollars into the hands of the wealthiest people in the country.

The kicker is that the American public, the 65-70% that still works for a living, are going to get the worst of it.

Today's carnage in US equity markets was not an isolated event by any means. It began years ago, but, in its most current manifestation, the collapse began in China last night, when the SSE fell nearly 5% in its last session of the week.

The contagious selling fever spilled over into European markets, with the DAX, CAC-40, and FTSE-100 ending the day down by 2.54%, 2.38% and 1.93%, respectively.

Prior to markets opening in the US, however, there was a spate of poor economic data released.

Retail sales for December came in at -0.1. PPI went negative (deflation) in December, at -0.2%. Empire Manufacturing (a gauge for economic activity in the NY Fed district, collapsed from a reading of -6.2 in December, to a ghastly -19.4 in January.

Industrial Production fell 0.4%. Capacity Utilization slumped to 76.5%.

Then came the news from Wal-Mart that they would be closing 269 stores this year, with 154 of them in the United States. The full list of Wal-Mart store closings can be seen here.

By the time markets actually opened at 9:30 am ET, futures were showing the Dow down by more than 350 points and the indices all fell off a cliff at the sound of the opening bell.

By midday, the Dow was down more than 500 points, the NASDAQ had shed close to 150, and the S&P was sporting losses of more than 50 points.

While today's crashing stock indices were certainly bloody, they weren't even close to the 10 worst one-day Dow declines of all time, so all is not lost.

As the session wore on, the signs of a failing economy - both here in the US and globally - were everywhere. The 10-year note fell briefly below 2.00%. With 1/2 hour left to go, declining issues were leading advancers roughly 6:1. Intel (INTC) was down nine percent. Citigroup (C) was posting a 6% loss; Microsoft (MSFT) was clinging to a four percent downside. Bank of America (BAC), which was pushing 17 two weeks ago, sliced through 15 and was trading in the range of 14.40, down 4.0% on the day.

With more companies reporting Q4 and annual earnings next week, the action this week and today might just be an appetizer for what's about to come, and that might be a recession, collapsing corporate earnings, liquidations, bankruptcies and the wholesale destruction of pension funds - heavily invested in equities - nationwide.

For its part, the Fed trotted out William Dudley, president of the NY Fed and vice chairman of the FOMc, who noted that negative rates could be considered in light of the recent market volatility. His tongue-lapping of the markets didn't seem to carry much weight. Investors were only interested in getting out and limiting the damage prior to the long weekend.

The day's closing prices:
S&P 500: 1,880.28, -41.56 (2.16%)
Dow: 15,988.08, -390.97 (2.39%)
NASDAQ: 4,488.42, -126.59 (2.74%)

Crude Oil 29.67 -4.90% Gold 1,088.90 +1.43% EUR/USD 1.0920 +0.53% 10-Yr Bond 2.03 -3.10% Corn 362.50 +1.26% Copper 1.95 -1.57% Silver 13.90 +1.14% Natural Gas 2.10 -1.73% Russell 2000 1,005.44 -1.97% VIX 27.70 +15.66% BATS 1000 20,066.91 -1.99% GBP/USD 1.4255 -1.13% USD/JPY 117.0050 -0.97%

For the week:
S&P: -41.76 (-2.17)
Dow: -358.71 (-2.19)
NASDAQ: -155.21 (-3.34)