Federal Reserve Vice Chairman Randal Quarles pushed back Friday against the idea of creating a strict rule for the central bank’s interest rate decisions, a proposal advanced in recent days by Stephen Moore, President Trump’s pick to join the Fed.
Quarles also said that he could see a scenario where the Fed raises rates in the near future. Moore has called for cutting rates.
“Strict rules … are as much about ignoring some data as they are about paying attention to other specific data,” Quarles said in written remarks delivered at a conference in New York. “I prefer a framework where we make it clear that we are focused on broad trends — elsewhere I have used the aviation analogy that we should not ‘chase the needles’ on the instrument panel.”
Quarles’ remarks did not directly mention Moore. Moore, a longtime conservative analyst and commentator, has proposed strictly tying the Fed’s interest rate decisions to the prices of commodity items such as oil and soybeans.
Moore has also criticized the Fed for slowly raising interest rates from historic lows in recent years, echoing criticism from President Trump, despite his own years of support for higher interest rates before Trump’s presidency.
Quarles voted to keep the Fed’s benchmark lending rate to banks at its current level, between 2.25 and 2.5 percent, during the central bank’s most recent meeting, and said Friday that he supports continuing to hold off raising rates despite strong labor and wage data over the last several months. Other economic indicators, like retail sales, have weakened, one of the reasons the Fed hit pause on a prolonged process of gradually raising interest rates after keeping them abnormally low for years during and after the 2008 financial crisis.
That decision, announced last week, was in line with Trump’s views on interest rates. He complained about the Fed’s rate hikes in 2018, even though the increases were carried out because the Fed saw the economy as growing stronger. But Quarles said on Friday he could see the Fed raising rates again in the near future if the economy reaches its growth potential.
“[F]urther increases in the policy rate may be necessary at some point, a stance I believe is consistent with my optimistic view of the economy’s growth potential and momentum,” said Quarles. The Fed vice chairman added that he thinks a “neutral” policy that keeps prices stable while neither stimulating nor restraining the economy involves a higher benchmark interest rate than the Fed’s current one.
Quarles, who serves as the Fed’s head financial regulator and the chair of an international panel that recommends safeguards against financial crisis, also addressed the current health of the U.S. banking system. He said that while the central bank remains concerned over mounting corporate debt, it believes that the banking system is not currently at risk of another major crisis.
