Potential candidates to head the Federal Reserve in 2018 suggested that monetary policy would be tighter if they were in charge.
Speaking at the annual American Economic Association meeting that ended Sunday, Glenn Hubbard of Columbia University, along with Stanford University’s John Taylor and Kevin Warsh, criticized the central bank for trying to do too much to help an economy struggling with problems that monetary policy can’t solve.
Fed watchers see the three, all former officials in George W. Bush’s administration, as among the candidates to take over should President-elect Donald Trump decide not to nominate Janet Yellen for another four-year term as chair when her current one expires in February 2018. Trump criticized Yellen during his successful campaign for the White House, at one point accusing her of keeping interest rates low to benefit the Democrats.
“The Federal Reserve is a little behind the curve” in raising interest rates, Taylor, a Treasury undersecretary for international affairs under the last Republican president, said Saturday during a panel discussion in Chicago.
Hubbard, who headed the Council of Economic Advisers under Bush, said he agreed with what he perceives as Trump’s stance that the U.S. has depended too much on the Fed to support the economy in recent years.
Dated Policy
“The Federal Reserve was very successful in the initial period after the crisis but continued a policy perhaps past its shelf life,” he said during an economic association panel on which he appeared with Taylor.
The Fed raised interest rates in December for the second time since 2006 as part of a process known as normalization, after holding them near zero for seven years. Its target for the overnight interbank federal funds rate is now 0.5 to 0.75 percent. Policy makers expect to increase the range’s midpoint to 1.4 percent by the end of 2017 and 2.1 percent by the end of 2018, according to the median of their projections released on Dec. 14.
Hubbard said the Fed might accelerate its rate hikes if Trump looks like he’ll succeed in pushing through his plan for big tax cuts and increased outlays on infrastructure.
“One would expect that the normalization that the Fed was already engaged in will continue at perhaps a more brisk pace,” Hubbard said.