Economist John Taylor Thinks The Fed Is 'in A Better Place' With Interest Rates

Raising interest rates have given the Federal Reserve some breathing room for the next time a downturn hits, economist John Taylor said Friday.

The Stanford economist and developer of the Taylor rule model that determines where interest should be based on growth told CNBC that he sees a central bank that has returned to rules-based policy in recent years, which he considers a positive.

"I think they made some good changes since they started to normalize. I think that's a good thing," Taylor told CNBC's Steve Liesman during a "Squawk Box " interview. "To get a normalized Fed is good for the economy. I think that's good they're in a better place at this point in case something happens."

Taylor reportedly had been on President Donald Trump's short list for Fed appointments. However, his view on rates runs counter to the president's, who has called for a 1 percentage point reduction in the benchmark funds rate.

Using Taylor's formula theoretically would put the funds rate around 3.5%, according to an Atlanta Fed calculator, though he did not express a view on where he thinks the right level is now. The current funds rate is targeted in a range between 2.25% and 2.5%.

He also said he thinks the economy can break out of its long-standing trend growth of a "lousy" 2% and get up to 3%.

RECENT NEWS

Stocks Rise After Better-than-expected Jobs Report To Close Out Winning Week

Stocks rose on Thursday following a better-than-expected U.S. jobs report as the economy tries to recover from the coron... Read more

Record Jobs Gain Of 4.8 Million In June Smashes Expectations; Unemployment Rate Falls To 11.1%

Another big contributor to the decline of the jobless rate was a plunge in those on temporary layoff. That total fell by... Read more

17.6 Million Unemployed Americans Probably Won't Return To Their Pre-pandemic Jobs

The share of the workforce currently out of work with no reasonable chance of returning to their jobs is about 11%, or a... Read more

GM, Fiat Chrysler U.S. Auto Sales Tank In Second Quarter As Coronavirus Saps Demand

U.S. vehicle sales in the second quarter for General Motors, Toyota Motor and Fiat Chrysler plunged by more than 30% Read more

Mortgage Demand Falls For The Second Straight Week, Signaling A Potential Slowdown In The Housing Recovery

The surge in mortgage demand from homebuyers over the past two months appears to be waning, even as mortgage rates conti... Read more

Fed's Bullard Warns Of Financial Crisis Risks As Virus Cases Spike, FT Reports

St. Louis Federal Reserve Bank president James Bullard has warned that a growing number of bankruptcies due to the coron... Read more