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Trump’s Hot-Button Fed Pick Faces Senate Committee Vote This Week

WASHINGTON — Judy Shelton, an unorthodox economist who was an adviser to President Trump’s 2016 campaign, could move one step closer to a seat on the Federal Reserve’s Board of Governors this week.

While her fate is far from guaranteed, the Senate Banking Committee is expected to approve Ms. Shelton’s nomination on Tuesday, putting her one simple-majority vote in the full Senate away from confirmation at a moment when the central bank is employing vast powers that she has a track record of questioning.

Opponents of Ms. Shelton’s nomination say confirming her would place the Fed at risk of politicization while it tried to rescue the pandemic-hit economy. Democrats on the committee have called for a second confirmation hearing in light of the crisis so that they can get her views on the current response.

While her nomination seemed shaky in the wake of her mid-February Banking Committee hearing, Republican opposition has slowly crumbled. Senators Patrick J. Toomey of Pennsylvania, Richard C. Shelby of Alabama and John Kennedy of Louisiana were initially skeptical. Mr. Toomey has since said she allayed his concerns, and Mr. Shelby has said he will go along with his Republican colleagues. While Mr. Kennedy has not publicly made up his mind, many analysts saw the scheduling of the vote as a sign of his likely support.

Ms. Shelton’s bid can advance to the full Senate without any support from the 12 Democrats on the committee so long as all 13 Republicans back her. Her nomination will come to a vote alongside Christopher Waller’s. Mr. Waller, the research director at the Federal Reserve Bank of St. Louis, was also nominated by Mr. Trump to the seven-seat Fed board. Mr. Waller, a more traditional nominee, is expected to clear the committee easily.

Ms. Shelton has become the focus of criticism in part because she flip-flopped on key policy positions after Mr. Trump was elected, moving quickly from supporting higher interest rates to favoring lower ones, in line with the president’s view. She has also questioned the basis of central bank independence.

While nominees with close political ties have landed on the Fed board before, Ms. Shelton faces enhanced scrutiny given widespread speculation that Mr. Trump may try to promote her to Fed chair when Jerome H. Powell’s term expires in early 2022.

Ms. Shelton also has a long record of supporting a return to the gold standard, which mainstream economists see as a nonstarter because it would be so economically harmful. She recently backed partly away from that position.

Sarah Boom Raskin, a former Fed governor and top Treasury official, said in an email: “The economic moment right now is too precarious to be rolling the dice on a person who has not wrestled with the current challenges of managing an economy that has been shocked by a pandemic, and whose views have not been fully articulated or reconciled with prior views.”

Ms. Shelton has at times questioned the Fed’s basic functions.

In an opinion piece written for The Wall Street Journal in the middle of the 2008 financial crisis, she criticized the practice of allowing interest rates “to be fixed by a central committee in accordance with government objectives.”

“We might as well resurrect Gosplan, the old Soviet State Planning Committee, and ask them to draw up the next five-year plan,” she continued. Months later, in early 2009, she led a column with the sentence: “Let’s go back to the gold standard.”

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Credit…Erin Schaff/The New York Times

At her Senate committee hearing in February, Ms. Shelton said that she “would not advocate” going back to a “prior historical monetary arrangement.” She said that she had looked at historical monetary systems for valuable insights, but that “money only ever moves forward.”

She said, however, that having a “stable, level, international monetary playing field” would support free trade.

Ms. Shelton was previously confirmed as the United States director of the European Bank for Reconstruction and Development, though she regularly missed the overseas meetings for the international body. She said during her February hearing that she had done so because she had been in Washington for other meetings.

Ms. Shelton’s supporters say she would add intellectual diversity to the Fed, with some implying that she might lean against growth in the central bank’s balance sheet — which has expanded as the Fed buys securities and rolls out credit programs to keep markets calm. While she has kept a low profile since the February hearing, Ms. Shelton has occasionally posted comments on Twitter, including on the importance of price stability and on issues related to cryptocurrency.

One question that analysts are pondering is what version of Ms. Shelton will show up for work at the Fed if she gets the job: A gold standard proponent, or not? A supporter of low rates, as she has been during Mr. Trump’s administration, or an inflation hawk?

“It leaves open the question of what exactly she’d be like on the Fed,” said Sarah Binder, a Brookings Institution senior fellow who has written a book on the politics of the central bank. She pointed out that Ms. Shelton’s out-of-the-mainstream ideas were likely to find little purchase among her colleagues, and that individual governors couldn’t make much of an impact on their own.

“You can really imagine her tilting at windmills,” Ms. Binder said.

The question of whether Ms. Shelton would become Fed chair-in-waiting seems to be key. Mr. Trump spent 2018 and 2019 publicly criticizing Mr. Powell, though those critiques have tapered off during the current crisis. Should Mr. Trump win re-election, Ms. Shelton could be a potential replacement for Mr. Powell, since governors are often promoted to the leading position.

“She could do real damage all on her own as chair,” said David Wilcox, a former research director at the Fed.

He also said he worried that she might get in the way of the coronavirus crisis response. “In the moment of crisis, there simply isn’t time to revisit ideas that have been consigned to the dustbin of history,” Mr. Wilcox said.

Ms. Shelton would fill a seat that formerly belonged to Janet L. Yellen; the unexpired term would be up for renewal in 2024. Mr. Waller would fill a seat formerly held by Ms. Bloom Raskin, with a term expiring in 2026.

While neither nominee would exert much influence as an independent governor, their confirmations would give Mr. Trump his handpicked choices for six of the board’s seven spots. Lael Brainard was appointed governor by President Barack Obama, and although Mr. Powell was named to the board by Mr. Obama, Mr. Trump elevated him to the chair.

That stocking of the Fed could also have significant implications for bank regulation, which tends to break more along party lines than does monetary policy. The Powell Fed has been tweaking the rules for the biggest banks around the edges to make them more industry friendly.

Ms. Shelton has a long history of pushing for limited regulation. In one 2009 interview, she blamed government intervention in mortgage markets, rather than bad behavior by banks, for the 2008 financial crisis.

Mr. Trump previously toyed with nominating Stephen Moore, one of his outside economic advisers, and Herman Cain, a former presidential candidate, to the Fed board, but decided not to after their past comments on and actions toward women came to light.

He had earlier nominated a former Fed official, Nellie Liang, to the job, but she faced opposition from the banking industry and eventually withdrew her name. Another nominee, Marvin Goodfriend, also failed to secure the votes necessary for confirmation.

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Bipartisan Lawmakers Cast Doubt on Judy Shelton, Trump’s Fed Nominee

WASHINGTON — Republican lawmakers expressed concern about Judy Shelton, President Trump’s nominee for the Federal Reserve, casting doubt on the confirmation chances of a candidate viewed as a potential next Fed Chair.

Ms. Shelton faced skepticism from both Republicans and Democrats on the Senate Banking Committee, with lawmakers questioning whether she would protect the Fed’s independence and pressing her about previous policy positions she has espoused, including a return to the gold standard.

“I’m concerned,” Senator Richard Shelby, the Alabama Republican, said when asked which way he was leaning on her confirmation following the hearing. He was joined by Senator John Kennedy, Republican of Louisiana, and Senator Patrick J. Toomey, Republican of Pennsylvania, in expressing uncertainty about whether she would win their support.

Ms. Shelton, 65, has been a controversial pick for the job. She has a history of supporting the gold standard, has questioned the need for the Fed, and has changed her policy views significantly since Mr. Trump, for whom she served as an unofficial campaign adviser, came into office.

Senator Mike Crapo, the Idaho Republican who chairs the committee, sought to portray Ms. Shelton as a solid pick for diversity who would support lighter financial regulation.

But other Republicans were less sanguine, with Senator Patrick J. Toomey, Republican of Pennsylvania, calling Ms. Shelton’s view that the Fed should pay attention to foreign exchange rates “dangerous.”

“I remain concerned,” he told reporters outside of the hearing, saying that he has not yet made up his mind on Ms. Shelton’s nomination. He said he would be willing to oppose one of Mr. Trump’s nominees if he thinks the “nominee is unsuitable for the job.”

Mr. Kennedy said “nobody wants anybody on the Federal Reserve that has a fatal attraction to nutty ideas,” adding that he was “not saying that’s the case here.”

Because Ms. Shelton would need a simple majority vote to move onto confirmation by the full Senate, only one Republican would need to object in order to potentially dash her chances of moving forward. The committee has 13 Republicans and 12 Democrats, and it is not clear that any of the Democrats would support her bid.

“They asked substantive, tough questions,” Sam Bell, the founder of Employ America, said of Republican senators. Mr. Bell’s group has been pushing for Fed nominees that are focused on boosting employment and has vocally opposed Ms. Shelton.

“The aura, after the hearing, is that there’s serious bipartisan skepticism.”

Democrats showed their discomfort with Ms. Shelton, particularly her close ties to Mr. Trump, and pressed her repeatedly on whether she would operate independent of the White House. They quizzed her on whether she felt the president’s frequent attacks on Jerome H. Powell, the chairman of the Federal Reserve, were appropriate.

“Frankly, no one tells me what to do,” Ms. Shelton said at one point. “I don’t think it’s the job of the Federal Reserve to accommodate political agendas” and “the Fed operates independently, as it should.”

But she indicated that she did not have a problem with Mr. Trump’s ongoing criticisms of Mr. Powell. The president regularly blasts the Fed Chair on Twitter and in public remarks, faulting him for not doing more to boost the economy and pushing him to cut interest rates more aggressively.

“I do believe that every American, every member of Congress” and “our President” have the right to criticize the Fed, she said, adding later that “in some ways, it’s refreshing that it is out in the open.”

Ms. Shelton’s nomination has raised concerns among economists and former central bankers, who worry that her changing policy views — she used to support higher interest rates, but flipped to support lower rates around the time Mr. Trump came into office — suggests she would operate with an eye on the White House.

Heightening that concern is the possibility that Ms. Shelton is viewed as a possible successor to Mr. Powell should Mr. Trump win a second term and opt to replace his first pick for the Chair job.

That tough questions came from both sides of the aisle could owe, in part, the Fed’s extensive efforts in recent years to explain its policies and the importance of its independence to members of Congress. Mr. Powell and the Fed’s governors regularly visit with lawmakers, discussing policy and hearing out their concerns. When they appear on Capitol Hill to offer testimony, they often highlight that politically unconstrained central banks have a history of fostering superior economic outcomes.

Mr. Trump’s other nominee for the Fed, Christopher Waller, 60, also appeared before the Senate Banking Committee but had a far less testy hearing. Mr. Waller, currently research director at the Federal Reserve Bank of St. Louis, faced only light vetting, though he was asked some questions mirroring those posed to Ms. Shelton.

Ms. Shelton was asked repeatedly about her history of supporting a gold standard, a monetary approach that the United States abandoned half a century ago because it was deemed impractical. Mainstream economists generally say that returning to a gold-backed currency, if it were even possible, would be economically damaging.

“You never go back, with money,” Ms. Shelton said during the hearing, suggesting she was surprised to be portrayed as supporting a return to a traditional gold standard. At one point, Ms. Shelton said that she “would not advocate going back to a prior historical monetary arrangement.”

In 2009, Ms. Shelton started a Wall Street Journal editorial with the line: “Let’s go back to the gold standard.”

Ms. Shelton has been a longtime critic of the type of policies the Fed undertook during the last recession to reinvigorate the economy, including lowering rates to near zero and purchasing large quantities of government-backed securities, often called quantitative easing or Q.E. She has blamed those efforts, which were intended to lower borrowing costs and encourage investment, for rising inequality.

During the hearing, Mr. Kennedy asked both nominees what they would do in the event of a serious recession, and pushed Ms. Shelton in particular.

“I would never go negative, I’m adverse to that idea,” Ms. Shelton said, referring to the idea of lowering interest rates below zero.

“At the maximum,” Ms. Shelton said, she would take rates to zero and engage in mass bond-purchases “very reluctantly. But first I would make it clear that there are limits to monetary policy.”

While Mr. Trump regularly urges the Fed to adopt negative interest rates, central bank officials have long been skeptical about pushing rates below zero in the United States — even in a recession — because it can have undesirable side effects.

Ms. Shelton’s ties to Mr. Trump have become an issue in part because of the president’s vocal criticism of the Fed, which is independent and answers to Congress, not the White House.

She “had a whole lot of explaining to do, and it’s not at all clear that she won over any detractors or undecideds,” Ian Katz, an analyst at Capital Alpha Partners, a policy and political research company in Washington, wrote in note following the hearing.

It would not be the first time one of Mr. Trump’s Fed picks is scuttled by Republican lawmakers. Senators have previously shot down possible Trump administration appointments to the Fed’s board. Stephen Moore and the former pizza executive Herman Cain were talked about for the job but were never formally nominated after lawmakers expressed concern about their past statements and actions toward women.

Nellie Liang, a former Fed official whom Mr. Trump formally nominated as a Governor, withdrew her name from consideration amid Republican opposition to her candidacy.

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