Fed nom­i­nee puts Repub­li­can loy­al­ties to the test


Pres­i­dent Trump’s un­con­ven­tional pick for a seat on the Fed­eral Re­serve Board, Judy Shel­ton, will face tough ques­tions this com­ing week from some key GOP sen­a­tors. Her per­for­mance at her hear­ing could make or break her con­fir­ma­tion.

An out­spo­ken critic of the Fed­eral Re­serve, Shel­ton is best known for her con­tro­ver­sial views on mon­e­tary pol­icy. She has sug­gested that the United States does not need a fully in­de­pen­dent cen­tral bank and has ad­vo­cated for the na­tion to re­turn to some­thing akin to the gold stan­dard. Sev­eral GOP sen­a­tors on the Bank­ing Com­mit­tee said they have ques­tions for her. The Se­nate Bank­ing Com­mit­tee is split along party lines, 13 to 12, so yes votes from all Repub­li­cans will prob­a­bly be nec­es­sary to ad­vance her con­fir­ma­tion.

“There are a lot of ques­tions about her,” said Sen. Richard C. Shelby (R-Ala.), a se­nior mem­ber of the Bank­ing Com­mit­tee, which must ap­prove Fed nom­i­na­tions. “I have a few, but I’m not the only one.”

Shelby said he planned to lis­ten closely to her an­swers at Thurs­day’s hear­ing, which will also in­clude Trump’s other nom­i­nee, econ­o­mist Christo­pher Waller of the Fed­eral Re­serve Bank of St. Louis. Democrats on the Bank­ing Com­mit­tee are likely to vote against Shel­ton.

“I have an in­ter­est in hav­ing solid, main­stream peo­ple on the Fed,” Shelby said in an in­ter­view. “Some peo­ple say that she’s not, oth­ers say she is. Let’s see what she says.”

How Shel­ton re­sponds to law­mak­ers’ ques­tions could make or

break her nom­i­na­tion, ac­cord­ing to five bank­ing lob­by­ists who spoke on the con­di­tion of anonymity to talk freely about the con­fir­ma­tion hear­ing. Although much me­dia at­ten­tion has fo­cused on Shel­ton’s views about gold, the bank­ing com­mu­nity is more alarmed by her de­sire to end fed­eral de­posit in­surance, which se­cures ac­count hold­ers’ de­posits of up to $250,000 at U.S. banks, and her re­cent ques­tion­ing of the Fed’s overnight bor­row­ing mar­ket, re­ferred to as repo op­er­a­tions, which helps the Fed keep cash flow­ing through the fi­nan­cial sys­tem.

Trump’s last four Fed nom­i­nees failed to make it through the con­fir­ma­tion process, a rare de­feat for the White House with a GOP-con­trolled Se­nate. Po­lit­i­cally, it would be dif­fi­cult for Repub­li­can sen­a­tors to go up against Shel­ton af­ter just vot­ing to ac­quit the pres­i­dent of im­peach­ment charges. And Trump’s re­elec­tion cam­paign is hum­ming along with sub­stan­tial fund­ing.

Although many of Shel­ton’s views are out­side the main­stream, many Repub­li­cans and fi­nan­cial in­sid­ers say she presents lit­tle risk to the Fed — or the broader econ­omy. If con­firmed, she would be one of seven mem­bers of the Board of Gov­er­nors and one of 12 vot­ing mem­bers on the Fed’s com­mit­tee that sets in­ter­est rates, mean­ing her in­flu­ence would be nar­row.

“I don’t think she be­longs on the [Fed] board, but it’s not go­ing to be the apoc­a­lypse,” said Tony Fratto, a for­mer Trea­sury of­fi­cial un­der Pres­i­dent Ge­orge W. Bush who runs a con­sult­ing firm. “She’s not go­ing to change the di­rec­tion of mon­e­tary pol­icy.”

Some ob­servers have voiced con­cern that Trump is po­si­tion­ing Shel­ton to be the Fed’s next chair, a role that would give her ex­ten­sive in­flu­ence and power to en­act more un­con­ven­tional poli­cies. Trump ap­pointed cur­rent Fed Chair Jerome H. Pow­ell, though the pres­i­dent has fre­quently ex­pressed re­gret over that de­ci­sion and looked for ways to re­move him. Pow­ell’s term ends in early 2022.

“Any­one who thinks Shel­ton would be just one of 12 votes on mon­e­tary pol­icy hasn’t been pay­ing at­ten­tion to her courtship of the White House and Trump’s feud with the Fed. You can’t sup­port Pow­ell and vote to con­firm her,” said Sam Bell, an avid Fed watcher and the founder of Em­ploy Amer­ica, a pol­icy group that ad­vo­cates for full em­ploy­ment and higher wages.

Sen. Mike Crapo (R-Idaho), chair of the bank­ing com­mit­tee, is mov­ing quickly to push through the nom­i­na­tions, which has alarmed some in the in­dus­try who would pre­fer a well­vetted process.

“This fast track­ing of the Shel­ton nom­i­na­tion is mind bog­gling. It is as if they have not read any­thing she has said,” tweeted Diane Swonk, chief econ­o­mist at Grant Thorn­ton. “She is not only un­qual­i­fied, she is dan­ger­ous. She has ad­vo­cated poli­cies re­mov­ing de­posit in­surance and poli­cies that would un­der­mine com­mu­nity bank­ing.”

But Shel­ton has al­ready won over Sen. Kevin Cramer (R-N.D.), who played a key role in sink­ing busi­ness­man Her­man Cain’s Fed nom­i­na­tion last year. Cramer met with Shel­ton on Tues­day and said he in­tends to sup­port her de­spite “what some might con­sider her more ex­otic views.”

“I kind of like hav­ing some­body that chal­lenges sta­tus quo like Judy on it,” Cramer said. “I wouldn’t want five mem­bers like her.”

Sen. Thom Til­lis (R-N.C.), an­other Bank­ing Com­mit­tee mem­ber, also an­tic­i­pated a lively con­fir­ma­tion hear­ing. But like many Repub­li­cans, he brushed off some of her more con­tentious views by ar­gu­ing that they don’t mat­ter, since there’s no way the United States is go­ing to re­turn to the gold stan­dard any­time soon.

“I’m sure the gold-stan­dard ques­tion will come up. Hon­estly, there’s no way to do it given where we are with our bal­ance sheet,” Til­lis said. “There’s just no way the math works right now.”

Sen. Pa­trick J. Toomey (R-Pa.) has also ex­pressed con­cern about try­ing to move the United States back to the gold stan­dard, which most econ­o­mists say is a mis­take that would se­verely ham­per the na­tion’s abil­ity to climb out of a re­ces­sion. Toomey’s of­fice de­clined to com­ment on Shel­ton this past week.

Sen. El­iz­a­beth War­ren (DMass.), a high-pro­file bank­ing com­mit­tee mem­ber, has called Shel­ton’s views “rad­i­cal” and ques­tioned the nom­i­nee’s ap­par­ently flip-flop­ping views on in­ter­est rates.

In the wake of the Great Re­ces­sion, when Barack Obama was pres­i­dent, Shel­ton fre­quently crit­i­cized “ul­tralow” in­ter­est rates. But in re­cent months, she

“Any­one who thinks Shel­ton would be just one of 12 votes on mon­e­tary pol­icy hasn’t been pay­ing at­ten­tion.” Sam Bell, founder of pol­icy group Em­ploy Amer­ica

has be­come an ad­vo­cate of lower in­ter­est rates, a view crit­ics say is more po­lit­i­cally driven to align with Trump.

In past in­ter­views with The Washington Post, Shel­ton has stressed that she does not speak with Trump and has al­ways been an in­de­pen­dent thinker. Shel­ton served as an in­for­mal ad­viser to Trump’s 2016 cam­paign and was his pick for U.S. ex­ec­u­tive di­rec­tor to the Euro­pean Bank for Re­con­struc­tion and De­vel­op­ment, a po­si­tion for which she was con­firmed by the Se­nate in 2018.

Shel­ton, who holds a PhD in busi­ness ad­min­is­tra­tion from the Univer­sity of Utah, spent much of her ca­reer writ­ing books and head­ing up the Sound Money Project, an eco­nomic re­search body.

“We make Amer­ica great again by mak­ing Amer­ica’s money great again,” Shel­ton wrote in a 2018 es­say for the lib­er­tar­ian Cato In­sti­tute.

Waller, the other Fed nom­i­nee to go be­fore the Bank­ing Com­mit­tee this com­ing week, has spent the past decade as an econ­o­mist and re­search di­rec­tor at the St. Louis Fed. He is an out­spo­ken sup­porter of Fed in­de­pen­dence and is widely viewed as a non­con­tro­ver­sial nom­i­nee. Bank­ing lob­by­ists said pair­ing Waller and Shel­ton to­gether was a shrewd move by the White House that could help ease Shel­ton’s con­fir­ma­tion.

The Post sur­veyed 18 Wall Street econ­o­mists and fi­nan­cial lob­by­ists last sum­mer shortly af­ter Trump floated the two can­di­dates’ names on Twit­ter. All sup­ported Waller, but only eight said Shel­ton should be con­firmed

A se­nior Trump ad­min­is­tra­tion of­fi­cial, who spoke on the con­di­tion of anonymity to dis­cuss pri­vate de­lib­er­a­tions, said that the ad­min­is­tra­tion does not an­tic­i­pate any prob­lems get­ting Shel­ton con­firmed. Her meet­ings with sen­a­tors have been suc­cess­ful, the of­fi­cial said, and “her con­fir­ma­tion process in com­mit­tee re­mains on track.”

One of Trump’s pre­vi­ous Fed nom­i­nees, Marvin Good­friend, weath­ered a rough con­fir­ma­tion hear­ing in early 2018. He strug­gled to ex­plain why he was wrong in pre­dict­ing that high in­fla­tion would ruin the econ­omy in the af­ter­math of the Great Re­ces­sion, as the Fed low­ered rates and stim­u­lated the econ­omy. (Good­friend died in De­cem­ber.) Repub­li­can lead­ers did not think they had enough votes to con­firm him and never brought him up to be con­firmed by the full Se­nate. Shel­ton’s nom­i­na­tion risks a sim­i­lar fate if she can­not make it through her hear­ing rel­a­tively un­scathed.


Con­ser­va­tive scholar Judy Shel­ton is known for her un­ortho­dox views on mon­e­tary pol­icy and is an out­spo­ken critic of the Fed.


Christo­pher Waller, seen with Lau­rie Waller at an event in Mo­ran, Wyo., in Au­gust, is re­search di­rec­tor at the Fed­eral Re­serve Bank of St. Louis and has also been nom­i­nated for the Fed­eral Re­serve Board. He will ap­pear be­fore the Se­nate Bank­ing Com­mit­tee this com­ing week.

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