WASHINGTON – Judy Shelton, an unorthodox economist who was a consultant to President Trump’s campaign in 2016, could move one step closer to a seat on the Federal Reserve Board of Governors this week.
While her fate is far from guaranteed, the Senate Banking Committee is expected to approve Ms. Shelton’s nomination on Tuesday, moving her simple Senate majority vote away from confirmation at a time when the central bank He is employing vast powers so that she has a history of questioning.
Opponents of Ms. Shelton’s nomination say confirming it would put the Fed at risk of politicization while trying to rescue the pandemic-affected economy. Democrats on the committee have called for a second confirmation hearing in light of the crisis so they can get their views on the current response.
While his nomination seemed shaky from his hearing at the Banking Committee in mid-February, the Republican opposition has slowly crumbled. Senators Patrick J. Toomey of Pennsylvania, Richard C. Shelby of Alabama, and John Kennedy of Louisiana were initially skeptical. Since then, Toomey said he had allayed his concerns, and Shelby said he would go with his Republican colleagues. While Mr. Kennedy has not made a public decision, many analysts viewed the voting schedule as a sign of his likely support.
Ms. Shelton’s offer can advance to the full Senate without any support from the 12 Democrats on the committee, as long as all 13 Republicans endorse it. Her nomination will be voted alongside Christopher Waller. Waller, the research director of the St. Louis Federal Reserve Bank, was also nominated by Trump for the seven-seat Fed board. A more traditional candidate, Mr. Waller, is expected to clear the committee easily.
Shelton has become the focus of criticism in part because he turned to key policy positions after Trump was elected, quickly moving from supporting higher interest rates to favoring lower rates, in line with the president’s opinion. It has also questioned the bases for central bank independence.
While candidates with close political ties have previously landed on the Fed board, Shelton faces improved scrutiny given widespread speculation that Trump could try to promote her to the Fed presidency when Jerome H. Powell’s term expires to early 2022.
Ms. Shelton also has a long history of supporting a return to the gold standard, which conventional economists view as non-initiating because it would be very damaging from an economic point of view. She recently retired in part from that position.
Sarah Boom Raskin, a former Fed governor and senior Treasury official, said in an email: “The economic moment right now is too precarious to roll the dice at a person who has not struggled with the current challenges of managing an economy who has been shocked by a pandemic, and whose views have not been fully articulated or reconciled with previous views. “
Shelton has sometimes questioned the basic functions of the Fed.
In an opinion piece written for The Wall Street Journal in the midst of the 2008 financial crisis, he criticized the practice of allowing interest rates “to be set by a central committee in accordance with the government’s objectives.”
“We could also resurrect Gosplan, the former Soviet State Planning Committee, and ask them to come up with the next five-year plan,” he continued. Months later, in early 2009, he headed a column with the phrase: “Let’s go back to the gold standard.”
At her Senate committee hearing in February, Shelton said she “would not advocate” returning to a “previous historic monetary settlement.” He said he had examined historical monetary systems for valuable insights, but that “money just moves on.”
However, he said having a “stable and level international monetary playing field” would support free trade.
Ms Shelton was previously confirmed as United States director of the European Bank for Reconstruction and Development, although she regularly missed meetings abroad for the international body. She said during her February hearing that she had done so because she had been to Washington for other meetings.
Shelton’s supporters say it would add intellectual diversity to the Federal Reserve, and some imply that it could lean on growth in the central bank’s balance sheet, which has expanded as the Federal Reserve buys securities and launches credit programs to stay calm. of the markets. While he has kept a low profile since the February hearing, Shelton has occasionally posted comments on Twitter, including on the importance of price stability and on cryptocurrency-related issues.
One question analysts are pondering is which version of Ms. Shelton will show up to work at the Federal Reserve if she gets the job: a gold standard advocate, or not? A supporter of low rates, as it has been during the Trump administration, or an inflation hawk?
“It leaves open the question of what exactly it would be like in the Federal Reserve,” said Sarah Binder, a principal investigator at the Brookings Institution who has written a book on central bank policy. He noted that Ms. Shelton’s mainstream ideas would likely find little buy-in among her colleagues, and that individual governors couldn’t have a big impact on their own.
“You can really imagine her leaning into the windmills,” said Binder.
The question of whether Shelton would become Fed chair seems to be key. Trump spent 2018 and 2019 publicly criticizing Powell, though those criticisms have lessened during the current crisis. Should Trump win reelection, Shelton could be a potential replacement for Powell, as governors are often promoted to the leadership position.
“She could do real harm alone as president,” said David Wilcox, former research director at the Federal Reserve.
He also said he was concerned that she might get in the way of the coronavirus crisis response. “At the time of the crisis, there is simply no time to review the ideas that have been sent to the dustbin of history,” said Wilcox.
Mrs. Shelton would occupy a position that previously belonged to Janet L. Yellen; the unexpired term would be renewed in 2024. Mr. Waller would occupy a position previously held by Mrs. Bloom Raskin, with a term expiring in 2026.
While none of the nominees would exert much influence as an independent governor, his confirmations would give Trump his carefully selected elections for six of the board’s seven seats. Lael Brainard was named governor by President Barack Obama, and although Mr. Obama appointed the board of directors, Obama elevated him to the presidency.
That Fed storage could also have significant implications for banking regulation, which tends to break more on the party line than monetary policy. Powell Fed has been adjusting the rules for larger edge banks to make them more industry friendly.
Ms. Shelton has a long history of pushing for limited regulation. In a 2009 interview, she blamed government intervention in mortgage markets, rather than bank misbehavior, for the 2008 financial crisis.
Trump previously played with the nomination of Stephen Moore, one of his external economic advisers, and Herman Cain, a former presidential candidate, to the Fed board, but decided not to do so after his previous comments and actions towards women came out. to the light.
She previously nominated a former Fed official, Nellie Liang, for the position, but she faced opposition from the banking industry and eventually withdrew her name. Another candidate, Marvin Goodfriend, also failed to obtain the necessary votes for confirmation.
