Donald Kohn, former vice chairman of the U.S. Federal Reserve
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The Federal Reserve should cut interest rates next week, not listen to a proposal that it consider keeping speeds amount to damage President Donald Trump’s re-election opportunities, former central bank Vice Chairman Donald Kohn said Tuesday.
In a CNBC interview, Kohn indicated he considers that the Fed will follow market expectations and reduced its benchmark overnight lending rate by 25 basis points at its Sept. 17-18 meeting.
“I think they have ample reason to do that. The economy is fine, it’s growing around 2%, has been growing around 2% for the last year. The unemployment rate is low,” he said on”Final Bell.” “But there are downside risks there from the trade war and the global slowdown, and inflation is running a bit below their target.”
But, he said he is not certain how far the policymaking Federal Open Market Committee must go beyond that.
Market expectations are for another cut in either October or December, followed by an additional easing in ancient 2020. The FOMC already has cut once annually, a 25 basis point decrease which was the first because 2008 after having raised the funds rate twice since December 2015. The funds rate is now targeted between 2% and two. 25%.
“So I think buying a bit more insurance is the right thing to do at this meeting. What I’m not so sure about is where they will be going after that,” he explained.
“I’m much less certain than the market seems to be that we need a whole bunch of decreases here,” he explained.
He did express certainty contrary to a proposal from former New York Fed President Bill Dudley, who contended in a Bloomberg Opinion piece that the FOMC should push back against Trump’s extreme criticism of the Fed by not lowering rates. Doing this, Dudley wrote, could hamper Trump’s re-election he predicted “a threat to the U.S. and global economy.”
“I thought it was wrong and harmful,” Kohn said of Dudley’s commentary. “The Fed needs to keep away from politics. They need to apply the best economic analysis possible to achieve legislative mandates.”
He said writing the piece was “a very dangerous thing to do.”
CNBC has reached out to Dudley for comment.