Fed Nom Quarles: Not Advocating Adopting Taylor Rule

--Taylor Rule 'Merely One Example' of Monetary Policy Rule

--Wants More Transparency on Stress Tests

--Supports Simplifying Volcker Rule, Other Fin Regulations

By Jean Yung

     WASHINGTON (MNI) - President Donald Trump's nominee for vice chairman of

regulation at the Federal Reserve, Randal Quarles, on Thursday told U.S.

senators he is not advocating that the Fed adopt the Taylor Rule for setting

interest rates.

     "The Taylor Rule is merely one example of a (monetary policy) rule," he

told the Senate Banking Committee at a hearing to consider his nomination. "I'm

not advocating the adoption of the Taylor Rule to guide Fed policy."

     He added he would take "very seriously" the Fed's full employment mandate. 

     The Taylor Rule is a well-known formula that would prescribe the

appropriate level of interest rates based on the value of several economic

indicators. Quarles in the past has endorsed the Republican proposal to require

the Fed adhere to a monetary policy rule. 

     In answering questions from senators, Quarles also stressed the importance

of transparency in regulating the financial system, especially with regard to

the Fed's annual stress tests for banks, and said he would support simplifying

the Volcker Rule as well as streamline other regulations adopted in the wake of

the financial crisis. 

     There needs to be more transparency surrounding the content of the stress

tests, he advocated, though he has no view on whether capital requirements or

other bars set by the Fed should be relaxed. 

     "It's important for regulators to be very clear about the principles that

are driving their decisions and about the expectations they would have for the

regulated system," Quarles said. 

     "Those regulators should be as clear as possible about how they will

exercise it in the future so that their actions are predictable and so that

there is less uncertainty as to what the arc of policy would be," he said. 

     The complexity of the Volcker Rule, which bars banks from trading with

their own funds, also makes it hard to apply, a point that former Fed Gov.

Daniel Tarullo made and one that Quarles agrees with, he said. 

     Quarles added he also supports all other suggestions made by Tarullo to

streamline regulation upon the former regulator's departure from the Fed earlier

this year. 

     Senators have until Tuesday to submit follow-up questions to Quarles, with

his response due Aug. 7. 

     The Senate is on recess next month through Labor Day. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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