Marvin Goodfriend Eyed for Fed Board

Marvin Goodfriend

According to internal sources first cited in a New York Times report, US President Donald Trump has significantly narrowed down his options for filling two upcoming vacancies in the seven-member board of the United Stated Federal Reserve. The top pick for one seat is Randal Quarles, while the presumed favorite for the other is Marvin Goodfriend, a professor of economics at Carnegie Mellon University.

Mr. Goodfriend, despite generally being viewed as a conservative economist, would bring a substantially different approach to the Fed’s board than has been pursued in the past with regards to interest rates. Goodfriend has, for many years, been a proponent of the use of negative interest rates to stimulate economic activity during recessions and similar market crises. He is also the author of a major paper on the subject, entitled The Case for Unencumbering Interest Rate Policy at the Zero Bound, which was published in collaboration with the National Bureau of Economic Research in 2015.

Up to this point, the Federal Reserve has been willing to resort to artificially low interest rates to stimulate the US economy, but has not been prepared to explore zero or sub-zero interest rate policies. Other central banks, however, have put the theory of negative interest rates into practice with mixed results. Japan, Denmark and the European Central Bank all instated negative interest rates during or after the financial crisis. While the moves have resulted in some growth, experts are divided on the long-term effects that such measures, combined with large-scale quantitative easing, could have.

Even if Mr. Goodfriend is tapped by the president for the open Fed board post, there is little guarantee that negative interest rates would become an economic reality in the United States. By the measure of Goodfriend and other economists who agree with his position on interest rates, zero and sub-zero rates are tools to be used only in times of hardship. At the moment, the United States is in a slow but steady growth stage, meaning that such measures would not be on the table at the moment. Even in a future recession, Goodfriend’s methods would likely meet with substantial opposition from the other six members of the board.

Goodfriend and Quarles represent the first two potential additions to the board of governors for President Trump. Another two seats, including that of Fed Chairwoman Janet Yellen, are set to become vacant next year. How Mr. Trump chooses to replace the exiting members will have a substantial effect on US monetary policy going forward.