US senator calls for hearings on Fed’s role in 2020 elections

Republican accuses former NY Fed chair Dudley of trying “sabotage” Trump’s trade talks

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The Federal Reserve

A US Republican party senator has called for public hearings on the need to prevent the Federal Reserve acting in a politically partisan manner.

Thom Tillis, a conservative senator representing North Carolina, responded angrily to an opinion piece written by former New York Fed president William Dudley. Tillis said he wanted the Senate’s banking committee to discuss the dangers of the Fed becoming a “political weapon” in presidential elections.

Dudley, who was also a former vice-chair of the Federal Open Markets Committee, said the 2020 presidential election “falls within the Fed’s purview”. He suggested that if the Fed wants to achieve the best economic outcome it should consider setting policy to minimise president Donald Trump’s chances of re-election in 2020.

Tillis said he was concerned by “the danger of this institution taking unprecedented and inappropriate steps to meddle in the presidential election”, in an August 28 statement.

The Republican senator said he was “very disappointed” in Dudley, accusing him of “lobbying the Fed to use its authority as a political weapon against president Trump”. Tillis described the op-ed as an effort to “sabotage” the president’s trade negotiations.

The Fed rejected Dudley’s suggestion. A spokesperson told Central Banking that its policy decisions “are guided solely by its congressional mandate to maintain price stability and maximum unemployment”, and that “political considerations play absolutely no role”.

The Fed reduced rates on July 31 by 25 basis points to a range of between 2% and 2.25%. The FOMC described the move as an “insurance” or “risk management” rate cut to respond to downside risks to the outlook from trade tensions and global growth.

In Fed chairman Jerome Powell’s Jackson Hole speech on August 23, he said the trade war was playing a role in the slowing global economy, and dampening capital spending and manufacturing in the US.

Last week the trade negotiations escalated further, with China announcing a new round of tariffs of between 5% and 10% on $75 billion of US imports, starting next month.

In response, Trump said he was increasing existing tariffs from 25% to 30% on $250 billion worth of Chinese imports from October 1. He also said another existing tariff on $300 billion worth of Chinese imports will be raised to 15%, from 10%, from September 1.

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