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REPEAT: Fed Nom Quarles: Not Advocating Adopting Taylor Rule

Repeats Story Initially Transmitted at 16:33 GMT Jul 27/12:33 EST Jul 27
--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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