GOP sen­a­tors push back on Fed pick as an ‘out­lier’

The Washington Post - - FRONT PAGE - BY HEATHER LONG

Judy Shel­ton, Pres­i­dent Trump’s nom­i­nee for a seat on the Fed­eral Re­serve Board, ap­pears in danger of re­jec­tion by the GOP-con­trolled Se­nate af­ter she strug­gled to de­fend what one Repub­li­can senator called “out­lier” views dur­ing a confirmati­on hear­ing Thurs­day.

Shel­ton, a long­time Repub­li­can, is known as an out­spo­ken critic of the Fed­eral Re­serve and for ad­vo­cat­ing that the United States re­turn to some­thing akin to the gold stan­dard, which the na­tion fully aban­doned in 1971. She has alarmed many in the fi­nan­cial world by call­ing for more co­or­di­na­tion be­tween the Fed and the White House. She has also al­tered some of her views to ap­pear more in line with Trump’s ag­gres­sive push for lower in­ter­est rates, spurring more con­cerns that she might not uphold the Fed’s independen­ce from pol­i­tics.

Three GOP sen­a­tors on the Se­nate Bank­ing, Hous­ing and Ur­ban Af­fairs Com­mit­tee pub­licly said Thurs­day that they are un­de­cided about whether Shel­ton should have a seat on the most pow­er­ful eco­nomic-policy-set­ting board, which de­cides on in­ter­est rates

and over­sees a sig­nif­i­cant amount of bank reg­u­la­tion. It would take only one Repub­li­can no vote to stall or de­rail her confirmati­on in the com­mit­tee. The White House said it stands fully be­hind Shel­ton, who said sev­eral times dur­ing her confirmati­on hear­ing she would bring “in­tel­lec­tual diver­sity” to the Fed.

“I be­lieve ev­ery­one has the right to crit­i­cize the Fed­eral Re­serve, in­clud­ing the pres­i­dent, ev­ery mem­ber of Congress and ev­ery ci­ti­zen,” Shel­ton said, adding that it’s “re­fresh­ing” that Trump’s Fed bash­ing is “out in the open,” com­pared with some past pres­i­dents such as Ron­ald Rea­gan who did so in pri­vate.

Shel­ton is the lat­est in a string of prob­lem­atic Fed picks for the pres­i­dent. Trump’s prior two picks — busi­ness­man Her­man Cain and con­ser­va­tive pun­dit Stephen Moore — both had to with­draw be­cause of dicey per­sonal is­sues. Repub­li­cans have shown a greater will­ing­ness to push back on Trump when it comes to the Fed, one of Wash­ing­ton’s last re­main­ing in­sti­tu­tions that is con­sid­ered free of pol­i­tics. Two of Trump’s other Fed nom­i­nees also were passed over.

Shel­ton’s sup­port­ers like that she would bring a con­trast­ing voice to the Fed board and a lighter touch on reg­u­la­tion. Crit­ics say her views are so far out­side the main­stream that she would be dan­ger­ous at the Fed and un­der­mine the cen­tral bank’s rep­u­ta­tion for apo­lit­i­cal de­ci­sion­mak­ing. Trump has made no se­cret he re­grets pick­ing Jerome H. Pow­ell to be Fed chair, and there’s con­cern that Trump would quickly el­e­vate Shel­ton to the top job at the cen­tral bank when Pow­ell’s term ex­pires in early 2022.

Sen. Pa­trick J. Toomey (Pa.) and Sen. Richard C. Shelby (Ala.), top Repub­li­cans on the Bank­ing Com­mit­tee, told re­porters af­ter the hear­ing that they had “con­cerns” about her.

Toomey said he “didn’t know” if Shel­ton would uphold Fed independen­ce, a key tenet for the cen­tral bank. Shelby said Shel­ton sounded like she “could be an out­lier” for such a key po­si­tion at the helm of the U.S. econ­omy.

Policy an­a­lyst Isaac Boltan­sky of Com­pass Point Re­search and Trad­ing put Shel­ton’s confirmati­on chances at “no bet­ter than a coin flip.” Two bank­ing lob­by­ists, who spoke on the con­di­tion of anonymity to talk freely, pre­dicted she would make it out of com­mit­tee but never come up for a full Se­nate vote.

“I don’t claim to be in the main­stream of econ­o­mists,” Shel­ton told the Bank­ing Com­mit­tee on Thurs­day as she tried to de­fend and in many cases soften some of her more con­tro­ver­sial views from the past four decades. “Frankly, no one tells me what to do.”

Law­mak­ers on the com­mit­tee, in­clud­ing some Repub­li­cans, sharply ques­tioned Shel­ton about her views on the gold stan­dard, her Trump ties and her past op­po­si­tion to fed­eral de­posit in­surance, which backs con­sumer de­posits up to $250,000 at U.S. banks.

“Let’s go back to the gold stan­dard,” Shel­ton wrote in a 2009 op-ed in the Wall Street Jour­nal. “Un­der a gold stan­dard, if people think the paper money printed by gov­ern­ment is los­ing value, they have the right to switch to gold.”

At the hear­ing, Shel­ton dis­tanced her­self from such writ­ings and told sen­a­tors they mis­un­der­stood her po­si­tion on the gold stan­dard, say­ing in­stead, “I would not ad­vo­cate going back to a prior his­tor­i­cal mone­tary ar­range­ment.”

In her 1994 book “Money Melt­down,” Shel­ton wrote that “elim­i­nat­ing fed­eral de­posit in­surance would re­store the es­sen­tial char­ac­ter of bank­ing.” But at the hear­ing Thurs­day, she de­nied that she wants to get rid of the pop­u­lar pro­gram that has been a bedrock of the U.S. bank­ing sys­tem since the 1930s.

“I think that hav­ing de­posit in­surance is es­sen­tial to main­tain trust in the Amer­i­can bank­ing sec­tor. I was merely us­ing an ex­am­ple to ex­plain moral haz­ard,” she said Thurs­day.

Democrats pounced on Shel­ton for flip-flop­ping as ev­i­dence she should not be con­firmed, say­ing they were un­clear what her views are and feared she might change them to ap­pease Trump. Sen. Robert Me­nen­dez (D-N. J.) ques­tioned why Shel­ton had missed about half of the board meet­ings when she was serv­ing as U.S. ex­ec­u­tive di­rec­tor to the Euro­pean Bank for Re­con­struc­tion and De­vel­op­ment (EBRD) for much of 2018 and half of last year.

“Show­ing up is a ba­sic re­quire­ment of the job. If any of us missed half of our votes, half of our hear­ings, I don’t think our con­stituents would send us back,” Me­nen­dez said.

Shel­ton pre­vi­ously told The Wash­ing­ton Post that she had to travel back to Wash­ing­ton to meet with Trea­sury De­part­ment of­fi­cials and that she had made all the key meet­ings at the EBRD, which is head­quar­tered in Lon­don. She made a sim­i­lar ar­gu­ment at the hear­ing, but Me­nen­dez replied she could have just called Trea­sury.

Some Repub­li­can sen­a­tors were also clearly un­easy dur­ing the hear­ing.

“I do have some trou­ble with some of your writ­ings,” Shelby said. Af­ter the hear­ing ended, he told re­porters that he is “still con­cerned.”

Toomey asked Shel­ton re­peat­edly about her re­cent op-ed ad­vo­cat­ing low­er­ing U.S. in­ter­est rates if other na­tions lower theirs, lest for­eign cur­ren­cies fall rel­a­tive to the dollar. “I think that’s a very, very dan­ger­ous path to go down,” Toomey said to Shel­ton.

Toomey told re­porters Shel­ton had not al­le­vi­ated his con­cerns that she would uphold Fed independen­ce and that he had not de­cided how he would vote. Toomey has bro­ken oc­ca­sion­ally with Trump in the past, such as when the pres­i­dent asked Congress to ap­prove a na­tional emergency at the U.s.-mex­ico bor­der.

Sen. John Neely Kennedy (R-LA.) also said he has not made up his mind whether to sup­port her nom­i­na­tion.

“I’m un­de­cided,” Kennedy said af­ter the hear­ing, adding that it doesn’t bother him that some­one might change their mind on a po­si­tion but that “no­body wants any­body on the Fed­eral Re­serve that has a fatal at­trac­tion to nutty ideas.”

Many Democrats said Shel­ton was act­ing like a “new Judy” by dis­tanc­ing her­self from pre­vi­ous writ­ings or say­ing law­mak­ers mis­un­der­stand the con­text in which she had said un­con­ven­tional things.

“We don’t know who we are nom­i­nat­ing for the Fed­eral Re­serve. Ms. Shel­ton has dis­avowed 40 years of her writ­ing . . . to say what she needs to say to be con­firmed,” said Sen. Sher­rod Brown (Ohio), the top Demo­crat on the Bank­ing Com­mit­tee.

Shel­ton has a PHD in business ad­min­is­tra­tion from the Univer­sity of Utah and has spent years as a con­ser­va­tive scholar and head of the Sound Money Project, where she spoke of­ten about ways to tran­si­tion back to a gold stan­dard. She was also an ad­viser to Trump’s 2016 cam­paign and has called for a big mone­tary con­fer­ence to take place at Mar-a-lago, Trump’s Florida re­sort.

Op­po­si­tion re­mains strong among many econ­o­mists and Wall Street in­vestors to her nom­i­na­tion. The Post reached out to 18 econ­o­mists af­ter the hear­ing, and five said they sup­ported her for the job. If con­firmed, sev­eral said they wor­ried she would be “heir ap­par­ent” for Fed chair, a role that would make her one of the top eco­nomic pol­i­cy­mak­ers in the world.

“The most prob­lem­atic thing about Judy Shel­ton is the fact she changed her tune,” said Danielle Di­martino Booth, CEO and chief strate­gist of Quill In­tel­li­gence and a for­mer ad­viser to for­mer Dal­las Fed pres­i­dent Richard W. Fisher.

The White House con­tin­ues to ex­press full sup­port for her nom­i­na­tion and that of Christo­pher J. Waller, a St. Louis Fed econ­o­mist who is Trump’s other nom­i­nee for the fi­nal two open seats on the Fed’s seven-seat board.

“The nom­i­na­tions of Judy Shel­ton and Christo­pher Waller are not be­ing pulled,” said White House spokesman Judd Deere. “The White House ex­pects both to be con­firmed by the Se­nate.”

ANDREW HARRER/BLOOMBERG NEWS

Judy Shel­ton, Pres­i­dent Trump’s nom­i­nee for a seat on the Fed­eral Re­serve Board, speaks Thurs­day dur­ing a Se­nate confirmati­on hear­ing.

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