Fed Nominee Goodfriend Set to Face Senators' Questions at Confirmation Hearing

By FeaturesDow Jones Newswires

Marvin Goodfriend, who has been nominated for a seat on the Federal Reserve Board of Governors, heads to Capitol Hill on Tuesday for his Senate Banking Committee confirmation hearing. President Donald Trump nominated the Carnegie Mellon professor and former Richmond Fed economist in November.

Mr. Goodfriend has published widely and has testified before Congress in the past. Here are five things to watch at his confirmation hearing.

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Is He a Hawk or a Dove?

Fed observers, including lawmakers, like to divide Fed officials into two camps: the hawks, who want tighter monetary policy to control inflation pressures, and the doves, who prefer looser policy to give a greater boost to the labor market. Mr. Goodfriend's past views suggest he doesn't fit neatly into either camp. His focus on making sure the Fed sticks to its 2% inflation target made him call for higher interest rates in 2011, when inflation was threatening to rise. In 2015, when inflation was low, he suggested holding off on raising rates. Expect lawmakers to try to pin him down on what the Fed should do in the next few years.

More Congressional Oversight?

Mr. Goodfriend has said the Fed should ask Congress to set its 2% inflation target into law to make the central bank more credible. He also has argued in favor of using a mathematical formula for setting interest rates. Other Fed officials, including Mr. Trump's nominee for chairman, Jerome Powell, have been reluctant to embrace more congressional oversight and such formal policy rules. Mr. Goodfriend's positions could draw sharp questions from Democrats concerned about lawmakers exerting too much political influence on the central bank.

Regulatory Changes?

When Mr. Powell testified before the committee at his confirmation hearing in November, he told Sen. Elizabeth Warren (D., Mass.) that the rules imposed on financial institutions following the crisis were "tough enough." He also told Sen. John Kennedy (R., La.) that he didn't believe any financial institutions were "too big to fail," or so large the federal government would have to rescue them lest their collapse destabilize the financial system. Mr. Goodfriend, in his academic career, hasn't opined much on the Fed's postcrisis regulatory agenda, and lawmakers are sure to probe his views. In particular, we could see senators ask him whether he agrees with Mr. Powell's assessment.

Unconventional Policies?

Lawmakers are likely to press Mr. Goodfriend on his views of unconventional monetary policies adopted by the Fed and other central banks since the financial crisis. He has criticized the Fed' asset purchases, for example, saying they blurred the lines between fiscal and monetary policy and distorted markets by including mortgage securities. That position is likely to prove popular with Republicans who have criticized the programs. Mr. Goodfriend also has supported dropping interest rates into negative territory to fight downturns, which could hurt retirees and other savers.

A Fee on Cash?

Normally, banks pay interest to their customers on their deposits. With negative interest rates, the customers pay the banks to hold their deposits. When central banks impose negative rates, they hope private-sector banks will lend more and their customers will spend more rather than pay the interest charges. But the customers -- consumers, businesses and other account holders -- could opt to hold their savings in cash rather than in banks to avoid the charges. To counter that, Mr. Goodfriend has suggested the Fed could either abolish paper currency outright or charge people for taking cash out of banks. He has proposed several mechanisms to implement the idea, including inserting a magnetic strip on bank notes to track when they enter into circulation. Look for lawmakers to press Mr. Goodfriend for his thoughts on the future of cash.

Write to David Harrison at david.harrison@wsj.com

(END) Dow Jones Newswires

January 23, 2018 05:44 ET (10:44 GMT)

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