CMU professor Goodfriend nominated to Fed board

New York Times

President Donald Trump on Wednesday nominated Marvin Goodfriend, a leading critic of the Federal Reserve’s actions since the 2008 financial crisis, to serve on the Fed’s board of governors.

The choice of Mr. Goodfriend, a professor of economics at Carnegie Mellon University, is a victory for conservatives who want to reshape the Fed’s approach to monetary policy. Mr. Goodfriend has long argued that the Fed should focus on controlling inflation using a minimalist set of tools.

The selection comes after Mr. Trump chose a moderate Republican, Jerome H. Powell, as the Fed’s next chairman. There still are three vacancies on the board, and Mr. Trump’s nominees will determine how fast the Fed raises interest rates, and how forcefully it responds to future downturns.

Mr. Goodfriend, 67, spent more than 20 years as an economist at the Federal Reserve Bank of Richmond, Va., a stronghold of conservative monetary theory, rising to the position of chief monetary policy adviser. He left the bank in 2005 to join the faculty at Carnegie Mellon.

In recent years, he has sharply criticized the Fed’s methods and goals. As Fed officials sought to revive the economy and drive down unemployment by mounting a large-scale stimulus campaign, Mr. Goodfriend repeatedly cautioned that the Fed was courting higher inflation.

In a 2011 interview, he said the Fed should “commit to making low inflation your priority. That will yield the lowest unemployment rate on average over time and the lowest inflation rate.”

In March, he warned that the Fed’s bench mark interest rate was “too low.”

While Fed officials, including Mr. Powell, have repeatedly described the Fed’s inflation target of 2 percent as a midpoint, not a ceiling, Mr. Goodfriend has said the Fed should not exceed it.

He has endorsed legislation proposed by House Republicans that would require the Fed to articulate a policy rule — a mathematical approach to determining the level of interest rates — with the goal of limiting the role of human judgment in monetary policy. In March testimony before the House Financial Services Committee, Mr. Goodfriend said that such a rule was necessary “to improve the discipline” of monetary policy and constrain inflation.

He also is a critic of the Fed’s asset purchases in the wake of the financial crisis. The Fed amassed more than $4 trillion in Treasuries and mortgage-backed securities to help drive down borrowing costs. Mr. Goodfriend has said the Fed should not have bought mortgage bonds, because that promoted economic growth in one sector, which he said was the kind of judgment that ought to be left in the hands of Congress.

If confirmed by the Senate, Mr. Goodfriend would join the Fed in the middle of an overhaul of its leadership. The top three Fed officials are being replaced. Stanley Fischer stepped down as the Fed’s vice chairman in October. If confirmed, Mr. Powell will succeed Janet Yellen, whose term ends in February. And William C. Dudley, president of the New York Fed, announced that he would resign next year.

All three departing officials were trained economists, while Mr. Powell is a lawyer by training and an investment banker by trade.

The nomination also could help to avert a situation in which the Fed’s seven-seat board is reduced to only three members, if Mr. Goodfriend is confirmed by the Senate before Ms. Yellen’s expected departure in February.

The Fed has never operated with fewer than four governors.