The Senate Banking Committee on Tuesday approved President Donald Trump's choice of Judy Shelton for the Federal Reserve board of governors on a party-line vote, overcoming widespread questions about her qualifications for the Fed.
Committee Chairman Sen. Mike Crapo, Republican of Idaho, said that Shelton had reassured him and other GOP senators that she recognizes the Federal Reserve's independence from the rest of the government and also supports insuring bank deposits — widely accepted policies that she had previously questioned.
Crapo also noted Shelton's comments during a February hearing that she does not support returning to the gold standard, in which the value of the dollar is tied to gold, even though she had advocated doing so in the past. Instead, Crapo said, Shelton regards the gold standard as a topic worthy of study.
“Many have tried to characterize her views on the gold standard ... as outside the mainstream and disqualifying for this position,” Crapo said. "I strongly disagree with that characterization.”
The committee also voted to back the nomination of Christopher Waller, the research director at the St. Louis Federal Reserve Bank, to fill a final open seat on the Fed's board of governors. Waller was approved 18 to 7, with all dissenting votes from Democrats.
Sen. Sherrod Brown from Ohio, the top Democrat on the committee, said Shelton has flip-flopped on many of her positions to align them with Trump. For example, Shelton criticized the Fed for holding short-term interest rates at nearly zero under President Barack Obama, but now supports very low rates, as Trump has urged. Shelton has also long supported free trade and even called for a North American currency union.
“She was an interest rate hawk and opposed tariffs on China – but now that President Trump doesn’t like those things, magically, neither does she,” Brown said.
Shelton’s unorthodox views and questionable credentials drew broad opposition among economists and many former Fed officials. In a Wall Street Journal editorial in 2009, she wrote, “Let's return to the gold standard.”
A spokesman for Senate Majority Leader Mitch McConnell would not comment on when the full Senate would take up the nominations of Shelton and Waller. The vote could take place any time this year, including after the November election.
Shelton's approval by the Banking committee represents a turnaround from February, when several senators expressed reservations about her after a hearing.
One of them, Sen. Richard Shelby of Alabama, said he was bothered by “some of your writings.” Another, Sen. Pat Toomey of Pennsylvania, criticized her view that the Fed should cheapen the dollar if other nations appeared to be manipulating their own currencies. After the hearing, Kennedy expressed skepticism about her nomination.
Kennedy had grilled Shelton on how she would respond to a recession if she were able to unilaterally set Fed policy. Shelton replied that she would cut the central bank’s benchmark short-term interest rate to zero and start buying $80 billion a month in Treasury bond purchases — policies that she had denounced when the Fed pursued them after the Great Recession.
But Shelton’s prospects eventually brightened. Toomey said he would support Shelton after she had reassured him that she would not seek to lower the value of the dollar. Shelby said that if all other Republicans supported her nomination, he wouldn’t block it.
Most mainstream economists regard any return to a gold standard as reckless, arguing that it would cause more and deeper recessions by limiting the Fed's ability to cut interest rates to fight downturns. At a hearing in February, Shelton retreated from her previous stance and said she “would not advocate going back to a prior historical monetary arrangement.”
As a member of the Fed's powerful board of governors, Shelton would vote on the Fed's rate decisions and on banking regulation. The governors also vote on whether to institute emergency measures, such as the Fed's decision in March to start buying corporate bonds for the first time.
Many of Shelton's critics fear that if she is confirmed as a central bank governor and Trump is re-elected, the president could tap her to succeed Jerome Powell as chair when Powell's chairmanship ends in 2022.
David Wilcox, a senior fellow at the Peterson Institute for International Economics and a former director of research and statistics at the Fed, noted that even as a lone governor, Shelton could potentially slow the Fed's decision-making.
“Time and energy would be consumed batting away ... proposals that were consigned to the dustbin of history decades ago," Wilcox said.
Some analysts say that the perception that Trump appears less likely to win re-election may boost Shelton's prospects because it makes it less likely that he could elevate her to the Fed's chairmanship. The full Senate could even wait until after the election is over to vote on her nomination.
Since Shelton's hearing in February, the coronavirus pandemic has plunged the U.S. economy into its worst downturn since the Depression. Democrats on the Banking Committee have asked the panel's chairman, Michael Crapo, an Idaho Republican, for a second hearing given the drastic deterioration in the economy since the February session.
Shelton served as an economic adviser to Trump’s transition team and then as U.S. executive director for the European Bank for Reconstruction and Development, which helps former communist countries transition to market economies. She holds a Ph.D. in business administration from the University of Utah.
In addition to Shelton, Trump has nominated Christopher Waller, research director at the St. Louis Federal Reserve Bank, for a second vacancy on the seven-member Fed board. Waller, who drew much less attention at the same February hearing where Shelton appeared, is seen as a far more conventional and qualified choice for the Fed. Some of his research examines the benefits of the central bank’s independence from political interference.
Waller has attended the Federal Reserve's policy meetings for several years as a staffer. Before joining the St. Louis Fed, he worked as an academic, researching monetary policy, for 25 years.