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 had espoused, including a return to the gold standard.
“I’m concerned,” Senator Richard C. Shelby, Republican of Alabama, said after the hearing when asked which way he was leaning on her confirmation. Senator John Kennedy, Republican of Louisiana, and Senator Patrick J. Toomey, Republican of Pennsylvania, also expressed uncertainty about whether she would win their support.
Ms. Shelton, 65, has been a controversial pick. 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, took office.
Senator Michael D. Crapo, Republican of Idaho and the committee’s chairman, sought to portray Ms. Shelton as a solid pick for diversity who would support lighter financial regulation.
But other Republicans were less sanguine, with Mr. Toomey calling Ms. Shelton’s view that the Fed should pay attention to foreign exchange rates “dangerous.”
“I remain concerned,” Mr. Toomey told reporters outside the hearing, saying that he had 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 thought the “nominee is unsuitable for the job.”
Mr. Kennedy said that “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 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 the Republican senators. Mr. Bell’s group has been pushing for Fed nominees who are focused on lifting employment and has vocally opposed Ms. Shelton.
“The aura, after the hearing, is that there’s serious bipartisan skepticism,” he said.
Democrats showed their discomfort with Ms. Shelton, particularly her close ties to Mr. Trump, and pressed her repeatedly on whether she would operate independently 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 criticisms of Mr. Powell. The president regularly blasts the Fed chair on Twitter and in public remarks, faulting him for not doing more to lift 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 took office — suggest that 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, Mr. Trump’s first pick for the chair job, should the president win a second term and opt to replace him.
That tough questions came from both sides of the aisle could owe, in part, to 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, also appeared before the Banking Committee but had a far less testy hearing. Mr. Waller, the 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 the 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 that 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 an opinion piece in The Wall Street Journal 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 buying large quantities of government-backed securities, often called quantitative easing. 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,” she said.
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 during 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 a note after the hearing.
It would not be the first time one of Mr. Trump’s Fed picks was scuttled by Republican lawmakers. Senators have previously shot down possible Trump administration appointments to the Fed’s board. The conservative commentator 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.
Judd Deere, a White House spokesman, said on Twitter on Thursday afternoon that the nominations of Ms. Shelton and Mr. Waller would not be pulled, and that “the White House expects both to be confirmed by the Senate to the Federal Reserve.”
But key lawmakers continued to sound skeptical.
“I’m not satisfied that she’s mainstream,” Mr. Shelby said later in the day. “I’d like to support her. I’d like to support the president’s nominees. But I haven’t always done that. I think the Fed should be independent. We should have mainstream people on there.”
Emily Cochrane contributed reporting.
Source: Economy - nytimes.com
