Inflation could be the area where Goodfriend could have a more immediate impact.
Yellen and others have entertained the idea of letting inflation run a little hotter than the 2 percent target before putting the clamps on. Though that’s hardly been the issue lately, with price and particularly wage pressures low, some economists believe that won’t last.
Indeed, the 2018 Fed could be the one to wrestle with the notion of how high inflation should run.
Fed watchers point to a statement Goodfriend made at a congressional hearing earlier this year, when he said, “The Fed’s history of falling behind the curve on inflation is cause for concern.”
“It is clear throughout his writings that he is more concerned about the Fed not defending its inflation target from the upside, i.e., that the Fed risks falling behind the curve, allowing inflation to rise above target and raising the specter of unanchored inflation expectations and a loss in Fed credibility that comes with it,” Matthew Luzzetti, senior economist at Deutsche Bank, said in a note.
Goodfriend also has welcomed efforts to bring more congressional oversight on the Fed’s policy decisions. During the March hearing where he spoke, he encouraged the 2 percent inflation target to be made a permanent part of the Fed’s dual mandate.
Part of that process, he said, should be the Fed demonstrating that it is making decisions by measures such as the Taylor Rule, developed by John Taylor to gauge where the funds rate should be according to prevailing economic conditions.
The current funds rate is targeted between 1 percent and 1.25 percent; the Taylor Rule would put it closer to 3.4 percent, according to an Atlanta Fed tool.
“Each of these changes he appears to support in the context of enhancing the Fed’s credibility in pursuing its dual mandate, which will, in turn, enhance the effectiveness of monetary policy in his view,” Luzzetti said.
Goofriend’s views likely will find favor with the Republican membership, many of whom have expressed skepticism and distrust of the Fed.
“Dr. Marvin Goodfriend is a highly respected researcher on monetary- and macroeconomics and an impeccable conservative,” Rep Jeb Hensarling, chair of the House Financial Services Committee, said in a statement. “He understands that consulting monetary policy rules can provide both instructive guidance for the Fed and transparency for the public.”