Shelton Clears Senate Committee, Moving Trump’s Pick Closer to Fed Board

Shelton Clears Senate Committee, Moving Trump’s Pick Closer to Fed Board

Shelton Clears Senate Committee, Moving Trump’s Pick Closer to Fed Board

Shelton Clears Senate Committee, Moving Trump’s Pick Closer to Fed Board

WASHINGTON — Judy Shelton, an unorthodox economist with close ties to the Trump administration, moved a step closer to a seat on the Federal Reserve Board after the Senate Banking Committee voted along party lines on Tuesday to advance her nomination to the full Senate.

Ms. Shelton moved forward along with Christopher Waller, who is research director at the Federal Reserve Bank of St. Louis and a more conventional pick. If they are confirmed by simple majority votes in the Senate, Ms. Shelton and Mr. Waller will fill the two empty seats on the Fed’s seven-member board in Washington.

While no Democrats on the committee voted for Ms. Shelton, five voted in favor of Mr. Waller.

Both nominees would hold a vote on the policy-setting Federal Open Market Committee. The committee’s 12 voting seats are occupied by the seven governors, the Federal Reserve Bank of New York president, and four regional central bank presidents on a rotating basis.

Ms. Shelton’s ascent to the powerful policy position has drawn particular scrutiny. That is partly because of her fringe ideas — she has been a longtime proponent of tying money to a fixed anchor, such as gold, an idea most economists label impractical or dangerous — and partly because analysts and Fed watchers worry that she could politicize the Fed.

The central bank closely guards its independence from politics, arguing that it is better for the economy if monetary policy is set without an eye on short-term election goals. Ms. Shelton has questioned whether the Fed has too much power, and has at times defended Mr. Trump’s criticism of the institution. She abruptly changed her opinions on monetary policy after his election, switching from criticizing easy monetary policy to speaking out in favor of lower interest rates as the president pushed for them.

“It would be in keeping with its historical mandate if the Fed were to pursue a more coordinated relationship with both Congress and the president,” she wrote in a 2019 opinion piece.

The unknown now is whether Ms. Shelton can pass through the full Senate. Her nomination at first seemed imperiled after her February confirmation hearing, as various Senate Banking Committee members voiced skepticism about her economic opinions and autonomy from the White House.

Support and pressure from Larry Kudlow, the White House adviser with whom she is close friends, helped Ms. Shelton to gain the 13 Republican votes she needed to pass to the Senate committee. Senator Sherrod Brown, from Ohio and the top Democrat on the committee, said in his opening statement that the administration had “made it clear” that the two nominees were a package deal.

Bloomberg reported that Senator Mitt Romney, Republican of Utah, said he has “concerns” about Ms. Shelton’s nomination. Assuming no Democrats support Ms. Shelton, four Republican defections would scupper her chances.

While Senator Mike Crapo, the committee’s Republican chairman, said that Ms. Shelton will be independent if confirmed, Mr. Brown said that she will be “dangerous” on the Fed.

“Putting one of the president’s close advisers on the Fed Board will only make things worse,” he said. “Dr. Shelton is a threat to our economy, our democracy, our country.”

While Fed governors hold just one vote on policy, blunting their impact, they are privy to internal discussions and thus capable of relaying information to both the White House and the press. Ms. Shelton is also seen as a likely candidate for Fed Chair should Mr. Trump win re-election and decide to replace Jerome H. Powell. Mr. Trump appointed Mr. Powell, but has expressed disappointment with his choice.

Ms. Shelton most recently served as American envoy to the European Bank for Reconstruction and Development. Before that, she was at co-director of the Sound Money Project at the Atlas Network, which pushes for limited government.

Mr. Waller is a more conventional pick for the Fed. He has written extensively on central bank independence, and prior to joining the Fed’s staff he was an economics professor, most recently at the University of Notre Dame.

Still, seven Democrats opposed Mr. Waller’s nomination, with Mr. Brown raising concerns about his views on regulation, in particular.

Ms. Shelton would fill a seat that formerly belonged to Janet L. Yellen; the unexpired term would be up for renewal in 2024. Mr. Waller would fill a seat formerly held by Sarah Bloom Raskin, with a term expiring in 2030.

Their confirmations would mean that six of the Fed board’s seven governors were nominated by Mr. Trump. Lael Brainard was appointed governor by President Barack Obama, and although Mr. Powell was named to the board by Mr. Obama, Mr. Trump elevated him to the chair.

The two new picks could join the Fed at a critical juncture. The central bank has played a pivotal role in cushioning the economy as coronavirus caused a deep and sudden recession, and its interest rate and credit policies are likely to be important to the speed and scope of the recovery.

If both are confirmed, a question going forward is what views Ms. Shelton will bring to the table as a governor — her preference for low interest rates or her wariness about inflation, and her preference for something like a gold standard, or a view more in keeping with the way the modern Fed operations.

“She has shown herself to be a political person,” said Julia Coronado, founder of MacroPolicy Perspectives. “The Judy who shows up will be dependent on the political moment.”

Jim Tankersley contributed reporting.


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