WASHINGTON >> Marvin Goodfriend, a conservative economist nominated by President Donald Trump to join the Federal Reserve’s board of governors, struggled during his Senate confirmation hearing today to explain his repeated warnings after the 2008 financial crisis that the Fed’s actions were about to unleash higher inflation.
Under sharp questioning by Democrats on the Senate Banking Committee, Goodfriend largely refused to concede he had been wrong, or to explain why he had predicted higher inflation, which never materialized. Inflation has consistently remained below 2 percent.
Instead, a flustered Goodfriend chose to talk about the importance of low inflation.
Sen. Elizabeth Warren, D-Mass., said, “I think based on the kind of judgment you have demonstrated, American families are very lucky that you weren’t on the Fed board over the last several years.” She added that she hoped Goodfriend would not be confirmed to the Fed job.
The rocky performance is unlikely to hurt Goodfriend’s confirmation prospects, given the Republicans do not require Democratic support to confirm Trump’s nominees. There was no sign members of the majority party were bothered by Goodfriend’s past remarks or his answers on Tuesday.
Goodfriend, 67, is a professor of economics at Carnegie Mellon University. He also spent 25 years as an economist and monetary policy adviser at the Federal Reserve Bank of Richmond. He is widely regarded as a leading exponent of the conservative view that the Fed should focus on controlling inflation using a minimalist set of tools, thus limiting its interference with financial markets.
After the crisis, Goodfriend repeatedly criticized the Fed’s stimulus campaign as likely to generate inflation rather than economic revival. He told Bloomberg in 2012 it was “really doubtful” the Fed could reduce unemployment, which was then hovering above 8 percent, to 7 percent. Furthermore, he said, even if the Fed succeeded in doing so, “it would give rise to rising inflation in the next few years, which would be disastrous for the economy.”
The unemployment rate has fallen consistently over the past several years, hitting 4.1 percent in December, and inflation has remained low.
Sen. Mike Crapo, R-Idaho, said Goodfriend was “well qualified.” As a member of the Fed’s board, Goodfriend would hold a vote on the Fed’s monetary policymaking committee, and he would participate in decisions about regulatory policy.
Democrats took a different view, reading some of Goodfriend’s old statements into the record.
“Why were you so wrong so many times?” asked Sen. Sherrod Brown, D-Ohio.
Goodfriend responded that the Fed needed to prioritize low inflation. “It’s critically important to anchor long-run inflation in order to get the capacity to drive down unemployment,” he said.
Goodfriend said he was committed to the Fed’s “dual mandate” of maximizing employment and stabilizing inflation. He added that the best way to maximize employment was to stabilize inflation. In recent years, under Janet L. Yellen, the chairwoman, and her predecessor, Ben S. Bernanke, the Fed has sought to maximize employment by stimulating economic growth, and not only by maintaining stable rates of inflation.
Brown asked whether the economy would have healed as well and as quickly if Goodfriend had been on the Fed’s board right after the crisis. Goodfriend avoided a direct response.
Goodfriend has continued to criticize the Fed in recent years. In March, he told a House committee that the Fed’s benchmark interest rate was “too low,” and he endorsed the adoption of a monetary policy rule that would limit the role of human judgment in raising and reducing interest rates.
Today, Goodfriend said he remained in favor of a policy rule, but he was less critical of current Fed policy, which he described as being “more or less on the right path going forward.”
Goodfriend also expressed general support for relaxing some post-crisis financial regulations, such as the Fed’s annual stress tests, which measure the ability of the largest banks to withstand a severe downturn. Relaxing many of the post-crisis banking rules is a key priority of the Trump administration.
The Fed, which has seven seats on its board, is likely to have just three governors beginning next month, until Goodfriend is confirmed. That would be the fewest governors in its history.
There are now four governors, one of whom, Jerome H. Powell, is awaiting confirmation as the Fed’s next chairman. The Senate is scheduled to hold a final vote later this week. Yellen plans to step down in early February, when Powell is installed.
Trump has not announced nominations for the remaining vacancies.