Fed defends its independence; CFPB prepares to hire

Receiving Wide Coverage ...

Playing politics
William Dudley, the former president of the Federal Reserve Bank of New York, ignited a firestorm on Tuesday when he said the Fed shouldn’t “bail out” the Trump administration by adjusting monetary policy to “enable” the president’s trade war with China.

“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,” Dudley wrote in an op-ed on Bloomberg. “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.”

Peter Foley/Bloomberg

What he suggests: “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.”

The Fed immediately distanced itself from Dudley’s remarks. “The Federal Reserve’s policy decisions are guided solely by its congressional mandate to maintain price stability and maximum employment. Political considerations play absolutely no role,” spokeswoman Michelle Smith said. Wall Street Journal, Financial Times

Dudley’s piece “is a controversial statement, particularly coming from an official who ranked among the Fed’s most powerful policymakers as recently as 2018,” the New York Times comments. “It also comes at a sensitive moment for the Fed, which has been under attack from Mr. Trump and trying to assert its independence from the White House and politics in general.”

“His remarks ignited a fierce debate Tuesday over how the Fed should navigate the treacherous economic and political waters it faces,” the Washington Post said.

Happy returns
Deutsche Bank, President Trump’s primary lender for many years, told a federal appeals court that “it has copies of tax returns sought under a congressional subpoena for the president and his family’s financial information.” However, “redactions in the letter Deutsche Bank filed on Tuesday conceal whether they have the president’s returns or those of others named in the subpoena,” which include Trump’s businesses and family members. Wall Street Journal, Financial Times, Washington Post, American Banker

Capital One, the president’s other main lender, said it “does not possess any tax returns responsive to the Capital One subpoena.”

Wall Street Journal

Help wanted
The Consumer Financial Protection Bureau is hiring again, following a two-year freeze. “Broadly speaking, the completion of the staffing planning process means: the ‘hiring freeze’ is lifted,” CFPB Director Kathy Kraninger said in an August 15 email to agency staff obtained by the paper. Kraninger said she wanted to move the bureau “away from the hiring freeze and towards a more sustainable and disciplined practice of identifying and hiring the staff needed to accomplish the bureau’s mission priorities.” The number of employees at the agency fell to 1,452 in March, down 15% from the peak of 1,712 in June 2017.

Blockchain risks
Switzerland’s Financial Market Supervisory Authority, or Finma, has “issued guidance on the money-laundering risks associated with blockchain technology. Finma said that while it recognized the potential of the new technology, the anonymity provided by blockchain made it susceptible to an increased risk of money laundering.”

Financial Times

Letting down our guard?
“Fears of a recession are rising and there are concerns about the swollen leveraged loan market. It seems like a good time to reinforce our financial defenses rather than weakening them.” So why is the U.S. “deregulating the banks right now?” the paper asks.

Quotable

“I understand and support Fed officials’ desire to remain apolitical. But Trump’s ongoing attacks on [Fed Chair Jerome] 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.” — Former New York Fed President William Dudley, arguing the Fed shouldn’t “bail out” the administration’s trade war through accommodative monetary policy