Trump puts hopes for Fed revolution on unconventional candidate

President Trump is putting his hopes for reshaping the Federal Reserve on a controversial conservative economist who is a fierce advocate for his economic agenda — and who has adjusted her views on monetary policy to fit the commander-in-chief’s.

After several derailed attempts to stock the independent central bank with allies, Trump announced last week that he intends to nominate former campaign adviser Judy Shelton and Christopher Waller, executive vice president at the Federal Reserve Bank of St. Louis, to two open spots on the Fed board of governors.

{mosads}Waller, a career academic, is seen as a safe and independent choice that won’t carry Trump’s water. But Shelton’s selection may be Trump’s most viable chance to sway the direction of the Fed after Republicans rejected his past efforts fill the bank with loyalists.

If Shelton is confirmed and Trump wins re-election, she’d be an immediate front-runner to replace Fed Chairman Jerome Powell when his term expires in 2022.

She’s echoed Trump in a series of op-eds and interviews from the president’s Washington, D.C., hotel, calling on the Fed to cut interest rates to support financial markets and Trump’s trade agenda.

Critics of Shelton say she’s as political as Stephen Moore and Herman Cain, two Trump allies floated for the Fed board by the president earlier this year who were rejected by GOP senators. 

Shelton has also been panned for her past support of a gold standard and global currency union, two ideas with almost no support in either party. 

Few if any Democrats are likely to support Shelton, which means just four of the 53 Senate Republicans can sink her nomination. But unlike Moore and Cain, there are factors working in Shelton’s favor that could help garner support among GOP senators. 

Shelton has already been confirmed by the Senate for her current role as U.S. executive director at the European Bank for Reconstruction and Development. 

She also lacks the baggage brought to the vetting process by Cain — who has denied four allegations of sexual misconduct — and Moore, who wrote several misogynistic columns over decades as a pundit.

“The problems that Moore and Cain had were not for the most part related to their economic thinking,” said Ian Katz, director at political and policy intelligence firm Capital Alpha Partners.

“Her issues are more closely tied to actual economics and monetary policy, so that makes it at least a little less complicated than things were for Moore and Cain.” 

Republicans have expressed little concern about how her closeness to Trump or unpopular opinions could influence the Fed.

“You wouldn’t want the entire board to be made up of those people,” said Sen. Kevin Cramer (R-N.D.), a Senate Banking Committee member who opposed Cain’s nomination. “But diversity of thought is what makes a good deliberative body, and their independence does not require neutrality.” 

Sen. John Kennedy (R-La.), another Banking panel member, said Shelton’s evolution on interest rates is simply “what good economists do.”

“They change their suggested remedies based on symptoms and the condition of the economy,” Kennedy told reporters Tuesday. 

“I don’t know a single economist who knows an economic textbook from an LL Bean catalog that says under all circumstances, no matter what the economy is doing, that you should raise rates every time you have a meeting or vice versa.”

Trump’s ongoing war against the Fed has forced Republicans to walk a careful line between supporting the president and the bank’s independence. Most GOP senators are generally pleased with Powell, a Republican, and don’t share Trump’s vitriolic views of his hand-picked Fed chief.

“I think [Powell has] done a very good job within the Fed. The Fed is supposed to be independent—I think he’s done that,” said Sen. Mike Rounds (R-S.D.), a Banking panel member.

Rounds added that Trump’s criticism is “a healthy give and take,” explaining that Trump “wants the same thing we all do, which is a really strong economy, and he’s going to lobby hard for whatever he thinks works for the economy.”

While Republicans generally cede that Trump has a right to rip the Fed, they’ve rejected his most overt threats to its independence. After sinking Trump’s planned nominations of Moore and Cain, the GOP demanded closer coordination on future picks with the White House.

Shelton’s name has circulated for months as a potential Fed pick, and top White House economic adviser Larry Kudlow said Tuesday that he’s met with members of the Senate Banking Committee to gauge support for her nomination.

“They let that name float out there for a while before nominating her, so I would take that to mean that there isn’t very big, significant enough Senate Republican opposition to derail her,’ Katz said. 

But Katz added that Shelton faces a narrow path toward confirmation that depends on successfully quelling concerns about her evolving and unconventional ideology.

Shelton, like Trump, had criticized the Fed under former Chair Janet Yellen for keeping interest rates close to zero while the economy recovered from the 2008 recession. She then flipped her views on monetary policy after Trump’s election, calling on the Fed to cut rates despite solid economic growth and unemployment near record lows.

In a Wednesday op-ed for the Washington Post, Shelton insisted that her positions on interest rates reflect her view that “it is important to be able to include the Fed in discussions of how best to safeguard financial stability and promote productive economic growth.”

“Questioning the Fed’s infallibility in making monetary policy decisions should not be interpreted as an attack on its “independence” but rather an honest effort to stir much-needed debate,” Shelton wrote. 

Kudlow also rejected accusations that Shelton has flip-flopped or holds views too on the fringe for the Fed.

“There’s no way that Judy Shelton is radical. There’s just no way,” Kudlow told reporters Monday. “God forbid anybody should change their forecast. I mean, c’mon.”

Democrats have rolled their eyes at such defenses and insist Shelton’s conspicuous turn toward supporting cheap money under Republicans is proof she would be little more than a crony for Trump at the Fed. 

Sen. Sherrod Brown (D-Ohio), ranking Democrat on the Senate Banking Committee, said Shelton’s “is unqualified and political as the two that collapsed because of Republican opposition,” referring to Cain and Moore.

“She’s changed her positions on everything. She’s auditioned for this job by speaking through media to Trump,” Brown told reporters Tuesday. “She brings into question the independence of the Fed.”