Unexpected Opposition Imperils Federal Reserve Nominee
Posted February 9, 2018 6:51 p.m. EST
WASHINGTON — The Trump administration is struggling to muster the necessary Senate votes to put conservative economist Marvin Goodfriend onto the Federal Reserve’s board of governors.
Sen. Rand Paul, R-Ky., said Thursday that he would vote against Goodfriend, who has also yet to attract any support from Democratic senators.
In the narrowly divided Senate, that could be enough to sink Goodfriend’s confirmation.
The unexpected opposition is a setback for the Trump administration, which has struggled to pick qualified candidates for the Fed’s board. The central bank, which sets monetary policy and plays a leading role in financial regulation, now has just three governors on its seven-seat board, the fewest in the Fed’s modern history.
“Three is really thin,” said Ian Katz, a financial policy analyst at Capital Alpha Partners, a research firm for investors.
Katz noted that the Fed under its new chairman, Jerome H. Powell, was conducting a wide-ranging review of regulations, part of the Trump administration’s effort to give greater leeway to financial institutions. It also must wrestle with the implications of recent financial market volatility.
“Fed governors have even more on their plates and minds than just a week ago,” he said.
Goodfriend is a professor at Carnegie Mellon University and a former monetary policy adviser to the Federal Reserve Bank of Richmond, Virginia. He is widely regarded as a leading academic proponent of the views that the Fed should focus on controlling inflation and minimize its interference with financial markets, both popular positions among conservative Republicans.
Those views and his stumbling performance at his January confirmation hearing, in which he struggled to explain why his inflation predictions after the economic crisis a decade ago were wrong, have solidified Democratic opposition. Sen. Sherrod Brown, D-Ohio, said he was voting against Goodfriend because he questioned his commitment to the Fed’s dual mandate, which requires the central bank to pursue maximum employment in addition to stabilizing inflation.
He said Goodfriend, who repeatedly criticized the Fed’s post-crisis economic stimulus campaign, had a record of “prioritizing hypothetical inflation over real people losing jobs.”
Sen. Jon Tester, D-Mont., who has often voted for the Trump administration’s nominees, said he opposed Goodfriend because of his comments at the hearing that there was no need for the federal government to guarantee 30-year fixed-rate mortgage loans.
Tester said Goodfriend was “unqualified for a leadership role at the Fed.”
Paul’s opposition has very different roots. He said Thursday that he was concerned about a paper Goodfriend wrote in 2000 proposing that the government put magnetic strips on money so it could, under certain circumstances, impose a tax on cash. The proposal was intended to help the government encourage spending during periods of low inflation and low interest rates.
“That doesn’t sound very exciting to me,” Paul, a libertarian, said Thursday.
Goodfriend has since abandoned the specific proposal, but in his academic writings he has continued to advocate other forms of “negative interest rates” — policies that make it expensive to hold money when the government wants to encourage spending.
Republicans have a 51-vote Senate majority, and Vice President Mike Pence is available to break ties. If Paul remains opposed, Goodfriend’s chances could rest on Sen. John McCain, R-Ariz., who is in his home state undergoing treatment for cancer.
The White House said in a statement that it continued to support Goodfriend.
“The president stands behind his nomination of Marvin Goodfriend, who is incredibly qualified for the Federal Reserve board of governors,” it said. “We hope the Senate confirms Mr. Goodfriend swiftly given the importance of the Federal Reserve to the American economy.”
The Senate Banking Committee approved Goodfriend’s nomination in a 13-12 party-line vote Thursday. Republicans have not yet scheduled a final vote by the full Senate. The political polarization of the Senate has made it increasingly difficult for presidents to secure the confirmation of their Fed nominees. Democrats in 2008 refused to vote on a pair of President George W. Bush’s nominees. Republicans responded two years later by blocking the confirmation of Peter Diamond, who won a Nobel Prize in economics while he was waiting for a Senate vote. Sen. Richard Shelby, R-Ala., who chaired the Banking Committee at the time, said after the prize was announced that Diamond was still unqualified.
Trump has not announced nominees for the other three board seats. The White House has focused on its search for a vice chairman, a job that has been vacant since October. Lawrence B. Lindsey, a former Fed governor who was considered a leading candidate, said this week in a note to clients of his economic advisory firm that he was withdrawing from consideration. Lindsey’s decision was reported earlier by The Wall Street Journal.
Others who have been considered, according to a person familiar with the search process, include Richard Clarida, a Columbia University economist and a managing director at the investment firm Pimco; Mohamed A. El-Erian, chief economic adviser at the financial conglomerate Allianz; and John Williams, president of the Federal Reserve Bank of San Francisco.