Trump nominates an experienced monetary hand for the central bank.
President Trump is filling out the three vacancies at the Federal Reserve Board of Governors, and on Wednesday he added the solid choice of Marvin Goodfriend. The professor at Carnegie Mellon business school will add some academic heft and extensive knowledge of the Fed system to a board that needs both.
Mr. Goodfriend served as the director of research at the Richmond Fed from 1993-2005, and he attended Open Market Committee meetings. He was a protege and friend of Allan Meltzer, the late, great monetary historian. He has also been a member of the Shadow Open Market Committee, a group of academics (including contributors to these pages) who serve as an unofficial Team B monitoring Fed policy.
“Goodfriend can neither be described as a hawk or a dove,” wrote his Shadow Market colleagues Charles Calomiris and Mickey Levy for the E21 website. He has been known as an inflation hawk in the past, “but recently, in recognition of the persistence of inflation rates below two percent, he has suggested that the Fed should avoid raising rates too quickly.”
This makes sense and reflects a necessary pragmatism as the Fed attempts to unwind its $4.4 trillion balance sheet while normalizing interest-rate policy. Mr. Goodfriend’s academic standing will also help in dealing with a Fed staff that works through the Chairman to dominate policy.
Mr. Goodfriend is known to be a skeptic of the Fed’s bond-buying because it gets the Fed into the business of allocating capital—for example, favoring real estate by buying mortgage-backed securities. One question for the Senate to ask is what Mr. Goodfriend thinks about negative interest rates. A paper he presented at the 2016 Fed confab at Jackson Hole suggests he’s open to the idea, which hasn’t had much success where it has been tried.
The Fed has been on autopilot for several years, but monetary policy could move center stage again if tax reform passes and growth accelerates. An experienced monetary economist who knows the Fed system could be a welcome addition to its councils.
This piece originally appeared in the The Wall Street Journal
Appeared in the December 1, 2017, print edition