As President Donald Trump fills the Federal Reserve Board with his nominations, Wall Street economists are busy trying to classify newcomers as inflation-fighting hawks or easy-policy doves. His latest pick might be tough to pin down.
Marvin Goodfriend, a Carnegie Mellon University professor and former Richmond Fed economist, looks like a short-term hawk and a long-term question mark.
On one hand, he’s said that rates are too low, and he’s been critical of current Chair Janet Yellen’s policies. On the other, he’s advocated for negative rates in times of crisis — a policy even consistent doves have been hesitant to embrace.
That combination could make Goodfriend’s policy views a topic of intense interest as his Senate confirmation hearing, which is not yet scheduled, approaches. As a respected monetary economist and one of just two Ph.D. economists on the Fed Board, he could wield significant intellectual influence — making his framing all the more important.
“Marvin has had a reputation for being somewhat critical of the policies of the Fed in recent years, but he’s somebody who is not rooted in one philosophy: he’s someone who takes in all the information, all the data, and makes the decision he thinks is right,” said Robert Dammon, dean at the Tepper School of Business, where Goodfriend teaches. “I wouldn’t necessarily put him in any particular bucket.”
Trump on Wednesday nominated Goodfriend to one of four governor vacancies on the seven-seat board.
Goodfriend, 67, said in a March interview with Bloomberg Television that he favored the Fed moving preemptively to defend its 2% inflation target, and that there was “enough pressure in the pipeline” to warrant a “small campaign” of hikes over the year to take the fed funds rate somewhere above 2%.
That outlook is more hawkish than what has actually happened. The Fed has raised rates twice this year and is expected to lift them again in December, taking the fed funds rate upper-bound to 1.5%.
Still, those comments came at a time when price gains were hovering just below the Fed’s 2% target. Since then, the Fed’s preferred index has retreated to 1.4% on a core basis, well below the Fed’s 2% target. It remains to be seen what Goodfriend thinks about policy in a world with surprisingly weak price pressures, though he did give a speech in May that warned against the risks of inflation overshooting.
What is clear: Goodfriend also espouses what is widely seen as a dovish policy during times of economic stress. He made an outspoken case for negative interest rates in a 2016 presentation at the Kansas City Fed’s annual economic conference in Jackson Hole, Wyo.
“Removing the zero interest bound is nothing more than the sensible application of monetary economics,” he said. Goodfriend argued that credibility against inflation is tied to credibility against deflation: The central bank would be more eager to raise rates to fend off too-high inflation if it knew that it would have enough room to fight deflation in the next recession.
That’s a big statement, because no other member of the policy-setting Federal Open Market Committee advocates going to negative interest rates readily. Many say it could be a tool in the toolkit — but paint it as a last resort. Goodfriend, who is skeptical of quantitative easing, sees it as a means to greater flexibility.
“It’s going to be interesting,” Omair Sharif, senior U.S. economist at Societe Generale in New York, said of Goodfriend’s governorship. “I’m not sure that we should be so quick to pigeon-hole him into the hawk-dove paradigm.”
