President Trump’s latest effort to reshape the Federal Reserve faces a crucial test this week as senators grill a controversial pick for the bank’s board of governors.
Judy Shelton, a former Trump campaign adviser, will face questions from the Senate Banking Committee during a Thursday hearing where lawmakers will look to decide if her unconventional views on a number of issues should disqualify her nomination to the board.
Shelton is considered Trump’s most viable chance to place an ally within the Fed after Senate Republicans rejected his past two picks, economist Stephen Moore and Herman Cain, who were both seen as sharp critics of the bank.
Shelton can expect similarly tough scrutiny.
Like Trump, she blasted the Fed during the Obama administration for keeping low interest rates but reversed course soon after the 2016 election. But over the past year, she has echoed Trump’s calls for near-zero interest rates and questioned the central bank’s independence as the president wages an unprecedented pressure campaign to cut rates.
Shelton has defended her changed stance in a series of interviews since Trump first floated her nomination in July. She has rejected accusations that she changed her views on rates to align with Trump, arguing that she has always been critical of Fed.
But Shelton’s reversal on monetary policy has raised questions about her ideological integrity and whether she’ll prioritize the Fed’s legal mandate over Trump’s political prospects.
“What her actual ideological beliefs are do matter,” said Brandon Barford, a former Republican Senate Banking Committee aide from 2006 to 2009. “Is she being an opportunist, or has she truly changed her policy beliefs?”
And her confirmation to the Fed board would make her the front-runner to take over the Fed if Trump attempts to oust its current chairman, Jerome Powell.
“That’s why it’s a lot more serious to vote for her than most Republican senators are giving credit to,” Barford said.
Shelton will appear before the Banking panel with Christopher Waller, executive vice president of the Federal Reserve Bank of St. Louis, who was nominated in tandem with Shelton to the Fed board.
While Waller is expected to easily pass muster, Thursday’s hearing will give the first indication of whether Shelton’s candidacy could be derailed by her controversial record. Democrats are expected to unanimously oppose Shelton, which means the opposition of just four Republicans could quash her nomination.
Shelton has already been confirmed by the Senate as the U.S. director of the European Bank for Reconstruction and Development. That process would almost certainly have surfaced any major ethics question similar to those that sunk Trump’s selections of Moore and Cain for the board.
Republicans have also expressed concern over Shelton’s decades of support for tying the U.S. dollar to gold, creating a global currency union and rejecting deposit insurance at American banks.
Senators have indicated they’ll question Shelton vigorously on her views.
“There are a lot of questions about her,” said Sen. Richard Shelby (R-Ala.), a former Banking Committee chairman, to The Washington Post. “I have a few, but I’m not the only one.”
Shelton’s advocacy for gold-linked currency and fixed exchange rates are well beyond the current economic mainstream in either party. Barford, a former Shelby aide, recalled receiving letters from Shelton’s Sound Money Project that fell flat among the GOP staff.
“No one was sending us anything like that, and the idea of even calling her as a witness for something was beyond the pale,” Barford said.
Trump’s previous efforts to put Fed critics on the bank faltered, but some Republicans now appear reluctant to reject yet another pick. Some GOP senators who’ve opposed other controversial Trump Fed picks say they are open to confirming Shelton.
They argue that a sole dissenting voice on the consensus-driven Fed board doesn’t pose a threat to the bank’s independence.
Sen. Kevin Cramer (R-N.D.), who sank Cain’s potential Fed nomination, announced his support for Shelton and Waller after meeting with both last week, calling the two “well qualified.”
And even some of Trump’s biggest critics from the right have voiced support for Shelton’s confirmation despite differences of opinion on core aspects of monetary policy.
“She would be a good addition to the group that’s there,” said J.W. Verret, a George Mason University banking law professor and former Trump transition aide who backed the president’s impeachment.
“I disagree with her views on interest rate policy and Fed independence, but she’ll be one vote of 12, and I think a variety of views should be presented.”
If Shelton and Waller are both confirmed, Shelton’s influence would be constrained to just one of seven votes on regulatory issues and one of 12 on interest rates. But Shelton’s opponents warn that if Trump wins reelection in 2020, she will become the heir apparent to Powell when his term runs out in 2022.
“Confirming her as a governor opens the door to the possibility … and she wants to fundamentally transform how we do monetary policy in a way that I think is anathema to most Republican senators, let alone most Americans,” said Sam Bell, policy director at Employ America, which advocates for Fed policy intended to maximize employment
Bell warned of the high stakes involved in Shelton’s nomination.
“Once you’ve confirmed someone as a governor, it’s hard to then go back and say, ‘I don’t want you as chair,’” he added.