(Recasts lede, adds markets)
June 2 U.S. President Donald Trump's picks for
two open spots on the Federal Reserve's Board of Governors may
push for tighter monetary policy if they receive the Senate
confirmation needed to join the Fed's rate-setting panel, their
Trump will nominate Carnegie Mellon University professor
Marvin Goodfriend and former Treasury Department staffer Randal
Quarles to fill two of the three open seats on the Federal
Reserve's Board of Governors, the New York Times said on Friday,
citing unnamed people with direct knowledge of the decision.
The conservative picks come as Fed Chair Janet Yellen
continues to slowly raise interest rates and lay out plans to
shed some of the trillions of dollars of bonds bought in the
wake of the financial crisis.
Goodfriend in particular has been skeptical of the Fed's
bond-buying programs, saying that it is too close to fiscal
Goodfriend and Quarles did not immediately respond on Friday
to requests for comment. A White House spokeswoman said
officials were not ready to make an announcement yet.
Goodfriend, 66, a former Richmond Fed policy advisor, also
has urged the central bank to adopt simpler rules governing
That view has support among many congressional Republicans,
though Yellen has strongly opposed their proposed legislation on
grounds that it would tie the Fed to make mechanical decisions
that would harm the economy. The rule at the center of that
legislation suggests the Fed should be raising rates more
aggressively than the three annual rate hikes policymakers
currently expect for both 2017 and 2018.
That could make for an interesting dynamic with bond
investors increasingly skeptical of faster rate hikes amid
uncertainty over the outlook for tax cuts under Trump's young
After Friday's report that employers added fewer than
expected jobs in May, short-term interest-rate futures traders
were still pricing in a June rate hike, but Treasury yields fell
as investors reduced bets on subsequent hikes.
One area Goodfriend may agree with Yellen is on the Fed's
plan to start shrinking its $4.5-trillion balance sheet before
the end of the year. Though the Fed has not published its plan
in detail, policymakers have said the portfolio would shrink as
if on "autopilot."
In an interview with Reuters last November, Goodfriend
appeared to also support such a preset plan.
"The Fed should choose a rule for shrinking the balance
sheet so that, as it sold off its assets, it was pre-committed
and markets could anticipate sales and prepare for them," he
said. Despite differences of opinion with Yellen, he said then,
"If there is interest in my point of view and my 30-something
years of thinking, writing, and teaching about the Fed and
central banking, then I would have to consider serving."
A lawyer by profession, Quarles, 59, worked on financial
regulation at the U.S. Treasury for years, including during the
2007-2009 financial crisis. Reuters had earlier reported he was
a leading candidate to be Trump's pick for the Fed's vice chair
in charge of banking supervision.
"Many market participants have been barking up the wrong
tree, arguing that Trump is an easy money guy because he
borrowed a lot when he was a real-estate tycoon," said Stephen
Stanley, Amherst Pierpont's chief economist, who worked for
Goodfriend when he was at the Richmond Fed. "If these two
nominees are eventually confirmed, the tone of the Fed Board
will instantly swing to a far more hawkish tenor."
(Reporting by Ann Saphir and Jonathan Spicer; additional
reporting by Steve Holland and Richard Leong; Editing by Chizu
Nomiyama and Diane Craft)