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 seven-member 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, charged that Shelton had flip-flopped on many of her positions to align them with Trump. Shelton had, for example, 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 but has since backpedaled on those views.
“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.
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Shelton’s unorthodox views and questionable credentials had drawn broad opposition from economists and many former Fed officials. In a Wall Street Journal editorial in 2009, she wrote, “Let's return to the gold standard.” And in another Journal column from 2019, she said the Fed should "pursue a more coordinated relationship with both Congress and the president,” which would undermine the central bank's independence.
A spokesman for Senate Majority Leader Mitch McConnell declined to 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.
On her own, it's unlikely that Shelton would have much effect on Fed policy, analysts say. The central bank has cut its short-term rate to near zero, is buying more than $100 billion in bonds a month to keep a lid on longer-term rates and is also providing a wide range of emergency loans, including purchasing corporate bonds for the first time.
Stephanie Aaronson, a vice president at the Brookings Institution and a former top economist at the Fed, said it's hard to change Fed policy as an outlier, or as a steadfast opponent of the chair.
“The Fed and the board have historically been much more consensus-driven," Aaronson said. “There is a very high value placed on collegiality within the system."
Fed governors, who are based in Washington, rarely dissent from the chair's view, though the presidents of the regional Fed banks often will.
When Shelton was first nominated last year, Trump was highly critical of the chair, Jerome Powell, whom he attacked for raising the Fed's benchmark rate and for not lowering rates again fast enough for Trump's satisfaction. But Powell stopped raising rates before the pandemic and then slashed them deeply, eventually drawing praise from Trump.
Shelton's approval by the Senate Banking Committee represents a turnaround from February, when several senators had expressed reservationsabout 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. Aand after the hearing, Louisiana Republican Sen. John 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.
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.
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.
Waller drew much less attention at the same February hearing where Shelton appeared and 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.
Still, Brown said he opposed Waller's nomination because he felt Waller would support easing regulations on large Wall Street banks.