Senate panel approves Trump’s controversial Fed nominee

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 Shelton had reas- sured him and other GOP senators she recognizes the Federal Reserve’s indepen- dence from the rest of the government and also supports insuring bank deposits — widely accepted policies she had previously questioned.

Crapo also noted Shelton’s comments during a Febru- ary 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 advo- cated doing so in the past. Instead, Crapo said, Shelton regards the gold standard as a topic worthy of study.

“Many have tried to char- acterize 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 Shel- ton has flip-flopped on many positions to align them with Trump. For example, Shelton criticized the Fed for hold- ing 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 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 unor t hodox 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 dol- lar if other nations appeared to be manipulating their own currencies. After the hearing, Kennedy expressed skepti- cism 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 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 she had denounced when the Fed pursued them after the Great Recession.

But Shelton’s prospects eventu a lly bright e ned. 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 board of governors, Shelton would vote on the Fed’s rate decisions and 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 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.