February 23, 2020

As Congress Prepares to Vet Judy Shelton, Worries About the Fed’s Future Mount

Ms. Shelton would be one potential replacement. Mr. Trump could also tap one of the other governors he has picked, including Christopher Waller, who is the research director at the Federal Reserve Bank of St. Louis and was nominated to the board alongside Ms. Shelton.

Mr. Waller, who will also face Senate scrutiny on Thursday, was an academic before joining the Fed and has a record of research more typical of central bankers. For years, the St. Louis Fed has doubted that low unemployment would spur higher inflation, and Mr. Trump’s economic adviser, Larry Kudlow, has highlighted that skepticism as a key reason the president tapped both Mr. Waller and Ms. Shelton.

Given the tension between Mr. Trump and Mr. Powell, “there’s reason to think he’s looking at Fed governor nominees and thinking about a future Fed chair,” said Michael R. Strain, the director of economic policy studies at the American Enterprise Institute. “That suggests a higher level of scrutiny of these nominees is important.”

Ms. Shelton’s public campaigning for the Fed job, which included a series of news media interviews she arranged in the lobby of the Trump International Hotel in Washington, has helped to spur speculation that she might become a favorite to replace Mr. Powell. So have her friendship with Mr. Kudlow and her willingness to change her views.

Ms. Shelton called for higher interest rates in the wake of the Great Recession and as recently as 2016. Since Mr. Trump’s election, she has spoken out in favor of cuts.

She initially couched her change of position as technical: Ms. Shelton said she wanted to cut rates in order to phase out the Fed’s postcrisis practice of paying interest on excess money that banks deposit at the central bank. More recently, she has said lower rates would allow the economy to grow uninhibited as the administration’s policies fueled higher investment and productivity. (That boom has not materialized.)

“When you have an economy primed to grow because of reduced taxes, less regulation, dynamic energy and trade reforms, you want to ensure maximum access to capital,” she told The Wall Street Journal’s editorial page.

Article source: https://www.nytimes.com/2020/02/12/business/economy/judy-shelton-federal-reserve.html?emc=rss&partner=rss

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