Goodfriend Tells Lawmakers He Backs Fed's Dual Mandate on Jobs, Prices -- 2nd Update
24 January 2018 - 6:08AM
Dow Jones News
By Kate Davidson
WASHINGTON -- Federal Reserve nominee Marvin Goodfriend told
lawmakers Tuesday he supports the central bank's dual mandate to
maintain stable prices and pursue maximum employment, after sharp
questioning from Democrats over his past comments suggesting the
Fed should focus on inflation.
Democrats pressed Mr. Goodfriend at his confirmation hearing to
explain his warnings following the financial crisis that the Fed
should move quickly to raise interest rates, including remarks in
2012 in which he said inflation could begin to rise dangerously if
the Fed let the jobless rate fall below 7%. The unemployment rate
in December was 4.1%, and inflation has continued to run below the
Fed's 2% objective.
"These wrong predictions are not outliers for you," said Sen.
Elizabeth Warren (D., Mass.), after Mr. Goodfriend acknowledged he
had been wrong about some of his inflation projections. "They have
been part of your overall approach to monetary policy which
effectively ignores the Fed's full employment mandate and instead
focuses solely on speculative concerns about inflation."
Ms. Warren said she thought it would be a mistake to put Mr.
Goodfriend on the Fed board.
President Donald Trump nominated Mr. Goodfriend, a Carnegie
Mellon University professor and former Fed economist, in November
to fill one of three vacancies on the board.
Mr. Goodfriend said his comments on the dual mandate were
"academic," and said he has argued that price stability is
essential for the Fed to pursue stimulative policies to help lower
unemployment.
"I totally support it," he said of the central bank's dual
mandate, adding that he regretted referring to the dual mandate as
"incoherent."
Sen. Bob Menendez (D., N.J.) suggested Mr. Goodfriend had
experienced a "confirmation conversion." He asked whether Mr.
Goodfriend thought the Fed should have followed his advice to begin
raising short-term interest rates in 2012.
"No, I don't," he said, but added that his remarks were being
taken out of context.
"The history and the thinking about monetary policy has said if
we want to get unemployment down to the natural rate...we as
central banks need to stabilize long-run inflation expectations,"
he said. "That's all I'm saying."
Mr. Goodfriend also said he thought Fed policy was "more or less
on the right path" and that inflation was slowly rising and could
reach 2% in "a year or so."
Asked why he thought inflation was so low, Mr. Goodfriend said
that is a puzzle around the world. He attributed it in part to
global central bankers' commitment to keeping inflation
expectations anchored, which he said had "cut off the inflation
tail," as well as a long period of very low interest rates at
several central banks.
Mr. Goodfriend, a widely respected monetary economist, would
provide academic heft on a board that now has just two economists,
including Chairwoman Janet Yellen. Ms. Yellen, whose four-year term
as chairwoman ends Feb. 3, has said she would step down when her
successor is sworn in.
The Senate is expected to vote this week on the nomination of
Governor Jerome Powell to be the next Fed chairman.
On Tuesday, Mr. Goodfriend reiterated his objection to the Fed's
buying of mortgage-backed securities as part of its postcrisis
asset purchases aimed at lowering long-term interest rates. He has
also said the Fed should limit its bond-buying to Treasury
securities except in limited circumstances when it has been given
explicit permission by Congress. He acknowledged Tuesday the Fed is
moving back toward a policy of keeping only Treasury securities on
its portfolio as it begins unwinding its massive balance sheet.
In a March 2017 appearance before the House Financial Services
Committee, Mr. Goodfriend said the Fed should welcome more
oversight from Congress to enhance its credibility. He also
recommended that Fed officials compare their policy decisions
against a mathematical rule such as the so-called Taylor rule.
On Tuesday, Mr. Goodfriend said a policy rule would help enhance
Fed transparency, but he insisted he is committed to the central
bank's independence.
"That's something that I completely believe in," he said.
Write to Kate Davidson at kate.davidson@wsj.com
(END) Dow Jones Newswires
January 23, 2018 13:53 ET (18:53 GMT)
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