Judy Shelton finds Trump twitter attacks on Fed 'refreshing'

Business | 14 Feb 2020 2:56 pm

Diane Swonk, chief economist at Grant Thornton, said that putting President Donald Trump's Federal Reserve nominee Judy Shelton on the board could send confusing signals to investors, who already view her as a potential Fed chair-in-waiting if Trump were to win re-election and decide not to offer Powell a second term.

“It sets up a communication challenge,” Swonk said. “Financial markets are already looking at her as the Fed chair-in-waiting.”

Kathy Bostjancic, chief U.S. financial economist for Oxford Economics, a consulting firm, said that Shelton appeared to be “saying the right things to be confirmed.”

“It came across as a bit disingenuous and contrived,” Bostjancic said.

Shelton recently served as U.S. executive director for the European Bank for Reconstruction and Development, which helps former communist countries transition to market economies. She was previously a scholar at the Hoover Institution at Stanford University.

In addition to her, Trump has nominated Christopher Waller, research director at the St. Louis Federal Reserve Bank, for a second vacancy on the seven-member Fed board. Waller, who drew much less attention from the committee’s senators Thursday, is seen as a far more conventional choice than Shelton. Some of his research examines the benefits of the central bank’s independence from political interference.

Waller said he has attended more than 60 meetings of the Fed’s policy-making committee. Before joining the St. Louis Fed, he worked as an academic, researching monetary policy, for 25 years.

If both nominees were to be confirmed by the Senate, Trump will have installed six of the seven Fed board members. The board members each have a permanent vote on the Fed’s policy-making committee, which gives them significant influence over interest rates.

The president of the New York Federal Reserve Bank also holds a permanent vote on the interest rate-setting committee. The remaining four votes on the committee rotate annually among the Fed’s 11 other regional bank presidents.

The Fed’s board members, who are also called governors, rarely dissent from the Fed’s policy decisions, though the regional bank presidents sometimes do. The board members also help shape the Fed’s approach to financial regulation.

Trump has struggled to fill the vacant governors’ seats. Four of his previous choices have failed to win approval, including conservative economics commentator Stephen Moore and former GOP presidential candidate Herman Cain last year.

Many Fed watchers worry that Trump is weakening the Fed’s independence with his frequent public attacks on its chairman, Jerome Powell, for not cutting rates more aggressively.

At Thursday’s hearing, Shelton said she does support the Fed’s independence, but she defended Trump’s attacks. She noted that previous presidents had criticized Fed chairs behind the scenes; she called it “refreshing” that Trump has done so publicly via Twitter.

Shelton has broadly supported more open trade and immigration policies, including among the United States, Canada and Mexico — a position sharply at odds with the Trump administration’s hard line on immigration.

In a Wall Street Journal column from 2000 titled “North America doesn’t need borders,” Shelton endorsed the vision of then-Mexican President Vicente Fox that North America’s economic integration should be deepened, partly through looser immigration laws.-AP


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