Policies that would increase transparency and accountability at the Federal Reserve would be promoted by the nominee to the Federal Reserve Board, he told a Senate committee Tuesday – before he faced a grilling by Democrats on the panel.
Marvin Goodfriend, nominated to the Fed Board in November by President Donald Trump, said in his opening statement at his nomination hearing before the Senate Banking Committee that he would use his experience of nearly 30 years of working as an economist at the Federal Reserve Bank of Richmond – and as an academic since then at Carnegie Mellon University in Pittsburgh – to address current policy issues.
The economist has in the past been described as a critic of the Federal Reserve’s response to the 2007-08 financial crisis (including “quantitative easing” and purchases of mortgage-backed securities), and is a supporter of a “rules-based” monetary policy (i.e., open to greater scrutiny by Congress).
The conclusion of his statement to the committee Tuesday marked the end of relatively easy going for Goodfriend, 67, especially when Democrats began posing questions.
Queries from Ranking Member Sherrod Brown (D-Ohio) set the tone. Questioned about his view of financial regulation, Brown charged that Goodfriend seemed dismissive of regulation. Brown said he based that view on past comments he attributed to Goodfriend that consumers should select which banks are the safest for their business.
“So does that mean that the job that [Jelena McWilliams, nominee for Federal Deposit Insurance Corp. (FDIC) chairman, also being considered at the hearing] shouldn’t exist?” Brown asked.
The nominee responded that he thought protection of consumers is incredibly important, not just for consumers but for the market economy. “What I meant, in that context, is that regulation, in that it focuses on firms – a good thing – in that it creates standards …”
Brown tersely interrupted: “Wait a minute, I’m not going to let you filibuster,” the senator said. “I’m reading your words – and you are saying that consumers should be ‘demanding shoppers.’ So, does that mean that the FDIC is simply not necessary, because consumers should figure out which of these banks are about to go under?”
“Absolutely not,” Goodfriend responded. “Consumers need to be informed, and the other half of regulation is informing consumers about the products that they are choosing between. That’s the point I was making in that context.”
Brown moved on to other past statements by the nominee. “In 2011 you told The Wall Street Journal that inflation scares are likely to recur and become more severe,” Brown said. “You also stated many times that you believed the Fed would be better off with a single mandate, focused solely on inflation rather than a dual mandate,” of reducing inflation and unemployment, Brown said. “In 2012 you called getting the unemployment rate then at 8.1% to below 7% a ‘herculean task’ that could lead to rising inflation that would lead to a disastrous economy.”
Brown added: “At the end of 2017, the unemployment rate was 4.1%, and the inflation rate remains below 2%. Why were you so wrong so many times?”
Goodfriend replied that “the essence of the Fed’s positon to stimulate the economy was based on years of generated credibility for anchoring long-run inflation. That credibility was critically important in order to keep stimulus in place for the last few years without generating inflation until we brought the unemployment rate down to something in the vicinity of …”
Brown interrupted again, asking, “So, would the economy have been in this good of shape if we had listened to Martin (sic) Goodfriend during this period?”
The Fed nominee told the senator that the “dual mandate is very well … It works because the two goals of low unemployment and low inflation are complimentary. And that’s exactly what was the case the last few years …”
Again, Brown interrupted, implying that Goodfriend has changed his tune since becoming a Fed nominee. “Do you now say there should be dual mandate with equal emphasis on inflation and full employment?” he asked
“I absolutely agree to that,” Goodfriend said. “In fact, I talk about how low inflation was the key to keep the unemployment rate down.”
Other Democrats questioning Goodfriend in a similar vein included Sens. Robert Menendez (N.J.) and Elizabeth Warren (Mass.).