A week after President Donald Trump tweeted his intention to nominate Judy Shelton and Christopher Waller to the Federal Reserve Board, GOP senators are expressing cautious optimism about both picks, despite Shelton’s unorthodox views on monetary policy.
They’re at least better than the president’s previous two picks — Stephen Moore and Herman Cain dropped out before they were officially nominated — said Sen. Richard C. Shelby, R-Alabama. “Well, we haven’t evaluated them yet, but the previous two were lacking in a lot of things,” he said.
The Cain and Moore choices were considered scuttled after at least four Republicans said they would vote against them.
Like Cain and Moore, Shelton has long advocated a U.S. to return to the gold standard, a position opposed by most economists, and has changed from a fierce critic of easy money policies during President Barack Obama’s tenure to an outspoken dove since Trump took office. That reversal has led critics to question whether she’d uphold the Fed’s reputation for apolitical, data-driven decision making.
“I’m concerned about how political she is,” said Senate Banking Committee ranking member Sherrod Brown of Ohio.
Shelby, who previously was chairman of the Senate Banking Committee and still sits on it, also indicated concern for the Fed’s independence.
“We need qualified people,” Shelby said, declining to speak directly about Shelton’s nomination. “That’s a high bar.”
“I think Chairman [Jerome] Powell has done a good job,” Shelby added. “He might not please me day-to-day, but their independence is important.”
His Republican colleagues on the committee, which would hold the confirmation hearings, sounded more supportive of the pick.
“Based on what I’ve read about [Shelton] — I haven’t seen her in committee yet — she’s very intelligent, thoughtful person who has a lot of experience,” said Sen. John Kennedy of Louisiana, who also spoke highly of Waller.
“They seem to be very knowledgeable about the Fed,” said Sen. Tim Scott, R-South Carolina. “I think they are picks that reflect the equilibrium coming out of the administration that we’d all expect.”
Some Republicans not on the committee also praised Shelton, whose economic views find support among the party’s right wing.
“I’ve always appreciated Judy Shelton’s take on the issues and look forward to hearing more from her as we go through this process,” said Sen. Marsha Blackburn, R-Tennessee, who also favors a U.S. return to the gold standard.
Many senators declined to comment, saying they still had research to do.
“I have not reviewed their backgrounds at this stage,” said Sen. Mitt Romney of Utah, one of the Republicans to speak out against Cain. “The initial read is that they are both qualified economists and not partisan political folks, and if they have strong credentials I’ll be happy to support them.”
Sen. Kevin Cramer of North Dakota, who opposed Cain, also hedged. “I don’t know either one of them personally,” Cramer said. “I’ve done a bit of reading of Waller’s stuff. Obviously, he seems like a thoughtful guy.”
But asked if he was ready to support Waller or Shelton, “I don’t know” was Cramer’s response.
Waller is seen by Fed watchers as a safe pick. He’s a longtime senior research economist at the Federal Reserve Bank of St. Louis who opposed the Fed’s interest rate hikes in 2018. Waller is also close to St. Louis Fed President James Bullard, the only member of the rate-setting Federal Open Market Committee to vote for an interest rate cut at the Fed’s June meeting. He’s a registered Republican with an economics Ph.D.
“Waller seems like a very conventional choice,” said Scott Sumner, Monetary Policy chairman at the Mercatus Center, a free market-oriented think tank at George Mason University. “I don’t think he’d be very controversial based on what I’ve read.”
But Shelton is a different story, said Sumner, who compared her to Cain and Moore.
“All three were fairly hawkish in their views during great recession: They thought monetary policy was too expansionary,” he said. “In my view, it was actually too contractionary during the Great Recession. So, I find those views a bit puzzling.”
Trump has already picked four of the five current governors on the seven-member board, including Powell to become chairman. Powell continued his predecessor’s policy of slowly raising interest rates and winding down the Fed’s quantitative easing program, repeatedly drawing the president’s tweeted ire.
Most mainstream economists consider the Fed’s political independence an essential element for controlling inflation. When central banks can’t take the politically unpopular steps to constrain inflation — which often result in lost jobs and lowered wages — prices can spike.
Shelton has gone from calling for raising rates to keep inflation at zero percent — not the Fed’s 2 percent target — to advocating interest rates at zero percent.
“Judy Shelton is changing every single position she has held for a long time, in a complete 180 degree flip, based on who the president is and it’s pretty worrying ,” said Sam Bell, policy director at Employ America, a left-leaning advocacy group. “She’s flipped on whether the Federal Reserve should be paying attention to financial markets, she’s flipped on trade, she’s flipped on any number of different aspects, and it’s really worrying because who knows what she’ll do as a Fed governor. “
He said he expects Republicans to oppose her.
“I think confirming somebody who is so transparently flips their positions that are supposedly long held and deeply felt just to get closer to power is going to be a tough pill for a number of Republican senators to swallow,” said Bell.
Shelton has repeatedly called for the U.S. to develop a currency backed by gold or other assets. She has proposed a shift toward such a system by having the Treasury issue bonds redeemable in gold.
“I don’t know much about Judy Shelton,” said Kent Smetters, an economist at the University of Pennsylvania’s Wharton School and former Treasury official during George W. Bush’s presidency. “I would be concerned with anyone who supports a return to the gold standard.
“Rather than create stability, the gold standard produces more price volatility and growth volatility, not less,” he said in an emailed comment. “Besides inviting speculators and being subject to new supply discoveries, a gold standard forces a fixed exchange rate between countries that have adopted the gold standard, which is very dangerous. The U.S. exported the Great Depression to the rest of the world due to the gold standard; the opposite could happen at any point.”
Kennedy discounted Shelton’s advocacy for gold.
“I’ve read some of her musings about the gold standard,” he said. “To me, she’s making a larger point: The value of your currency matters, and countries should not manipulate their currency in order to gain an advantage in trade — and I agree with that. I don’t think we’re going back to the gold standard, nor do I think she believes that we’re going back to the gold standard.”
The Senate hasn’t yet held a floor vote on Michele Bowman, a current Fed governor who has been renominated for a 14-year term that would begin in 2020.