Goodfriend Tapped for Fed Governor as Trump Fills Vacancies
Marvin Goodfriend, critic of Yellen, is being nominated by President Donald Trump to be a governor.
(Bloomberg) -- Marvin Goodfriend, a widely respected monetary economist and sometime critic of the Federal Reserve under Chair Janet Yellen, was nominated by President Donald Trump to be a governor at the U.S. central bank, the White House announced on Wednesday.
A professor at Carnegie Mellon University and a former director of research at the Richmond Fed, Goodfriend has served on an independent panel of economists known as the Shadow Open Market Committee aimed at providing alternative views on monetary policy.
Goodfriend will be Trump’s third nomination to the Fed’s Board of Governors, as the president moves to fill several vacancies on the seven-seat panel. Earlier this month, he picked Governor Jerome Powell to replace Yellen as chair. Randal Quarles was sworn into office in October as the Fed’s vice chairman of supervision.
Given that Powell doesn’t have a Ph.D. in economics, Goodfriend’s credentials will add some academic heft to a group of policy makers that will lose Yellen’s expertise when her term expires Feb. 3. The board also lost a respected economist when Vice Chair Stanley Fischer resigned in October.
“Marvin is a true monetary policy scholar and will be a significant contributor to the team at the Fed,” said Mickey Levy, chief economist for the Americas and Asia at Berenberg Capital Markets LLC in New York and another member of the Shadow Open Market Committee.
If confirmed by the Senate, Goodfriend would join at a critical junction for U.S. monetary policy. Fed officials are wrestling over how fast to raise interest rates in response to a tightening labor market against a backdrop of puzzlingly low inflation. The Fed has failed to reach its 2 percent inflation target for most of the last five years.
In testimony before a congressional subcommittee in March, Goodfriend spoke of “the Fed’s failure to secure the credibility of its inflation target” and the risks that created for policy and the economy.
Taylor Rule
Goodfriend, who was born in New York in 1950 and earned a Ph.D. from Brown University in Providence, Rhode Island, said the Fed should publicly measure its interest-rate decisions against a familiar monetary policy rule, such as the formula developed by Stanford University professor John Taylor, in order to enhance transparency and legislative oversight.
Some Republican lawmakers have proposed that the Fed tie monetary policy to a rule, like Taylor’s, with decisions subject to review by Congress’ Government Accountability Office. Yellen has opposed those as an attack on the Fed’s independence.
That same group pushed Trump to make Taylor his Fed chairman, but fell short when Trump opted for Powell.
Goodfriend, however, is no knee-jerk inflation hawk. He has argued the Fed should be as vigilant in guarding against deflation as it is in combating excessive inflation.
“There have been times when he said the Fed should tighten,” Levy said of Goodfriend. “And right now I think you would find him saying, no, you should go slow because the Fed has been shy of its 2 percent target” on inflation.
In a March interview on Bloomberg Radio, Goodfriend described himself as “someone who believes in stability of the price level.”
Zero Interest
Goodfriend has also warned that the Fed should be prepared for another scenario in which interest rates in the U.S. are pushed back to zero.
“The circumstances that have depressed long-term real interest rates are not likely to dissipate any time soon,” he said. “If the globe gets into recession in the near future, the zero interest problem might make a comeback, and I think central banks should be prepared and not presumptious.”
In that spirit, Goodfriend delivered a paper at the Kansas City Fed’s Jackson Hole symposium in August 2016 in which he criticized the path the Fed took when it struck zero in 2008. Under Ben Bernanke, the Fed went on to purchase about $3.5 trillion of bonds to depress borrowing rates, a program known as quantitative easing.
Goodfriend thought the impact of QE was questionable, at best. Instead he made a case for an even more unorthodox idea: negative interest rates. He conceded, however, that a sustained policy of negative rates might require abolishing paper currency, a step that would likely prove unpopular.
If Goodfriend is confirmed, two additional vacancies will remain on the Fed board. Yellen has also announced she plans to step down from the board when her term as chair expires in February, opening another slot for Trump to fill.
To contact the reporters on this story: Brendan Murray in Washington at brmurray@bloomberg.net, Christopher Condon in Washington at ccondon4@bloomberg.net.
To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Mike Dorning, Jeffrey Black
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