Warsh argued that the Fed missed opportunities earlier in the economic expansion to raise rates by pursuing what he called a “ride-the-wind” policy that was too short-term focused.
He questioned why rates are so low when the Fed is so close to achieving its goals of maximum employment and price stability. “Tell me again why interest rates seem to be so far away” from what is at least the historical target, Warsh said.
Warsh concentrated his comments on a call for widespread reform of the central bank. The Fed needs to take better account of the financial cycle in conducting monetary policy -- the ups and downs of money, finance and credit, according to the lecturer at the Stanford Graduate School of Business.
He also argued that it should stop relying so much on the “latest noise” from incoming data and instead set out a “well-defined, well-articulated strategy” for meeting its goals.
Taylor Rule
Taylor also called for changes at the Fed and repeated his support for Republican lawmakers’ efforts to get the central bank to adopt a rule to guide monetary policy.
The Stanford professor, who is known for developing his own policy rule, said such a step would make the Fed’s actions more predictable.
“We need some monetary reform,” Taylor said, adding, “Personnel is part of that.”
Two of Trump’s cabinet picks have offered at least guarded praise of Yellen. Treasury nominee Steven Mnuchin said Nov. 30 that the Fed chair has done a “good job,” and Commerce pick Wilbur Ross said she did a “reasonably good job” with a difficult situation.
This article was provided by Bloomberg News.