Trump taps 2 for Fed board, risking new clash with Congress
President Donald Trump tweeted on Tuesday that he intends to nominate Judy Shelton, a prominent advocate of returning to the gold standard, and St. Louis Federal Reserve economist Christopher Waller to the U.S. central bank’s board.
The selections come after two of the president's earlier picks for the Fed board withdrew from consideration amid an onslaught of criticism from members of both parties. The choice of Shelton, which follows months of Trump pressuring the Fed to cut interest rates, may also spark a backlash from lawmakers because few economists share her view that the dollar should be pegged to gold prices.
Trump has increasingly sought to assert control over the Fed in the face of signs that the economy may be weakening, broadsides that Fed Chairman Jerome Powell has ignored. Still, the Fed is considering a rate cut later this month for the first time in a decade, citing trade tensions and slowing global growth.
Two previous Trump nominees, Stephen Moore and Herman Cain, withdrew in the face of opposition from Senate Republicans, a stinging blow to the president’s efforts to install political loyalists at the central bank.
Shelton, who is close to White House economic adviser Larry Kudlow, served on Trump’s transition team and is currently U.S. executive director for the European Bank for Reconstruction and Development.
Waller is director of research at the St. Louis Fed, one of 12 regional banks in the Fed system. St. Louis Fed President Jim Bullard was the only member of the central bank's rate-setting committee to dissent from the Fed's decision not to change rates in June; he preferred to cut them.
Both nominees would have to be approved by the Senate, a process that could take months.
While Trump may have picked Shelton because she shares his bias toward low interest rates, that was not always the case. She was a longtime critic of the Fed’s efforts to keep rates low in the wake of the 2008 financial crisis, telling The Wall Street Journal in 2016 that “ultralow interest rates” have “flooded wealthy investors and corporate borrowers with cheap money, while savers with ordinary bank accounts have been obliged to accept next-to-nothing returns.”
In an interview with the Journal last week, she sounded a different note, saying rates should be reduced.
“When you have an economy primed to grow because of reduced taxes, less regulation, dynamic energy and trade reforms, you want to ensure maximum access to capital,” she said. “Today we are seeing impressive gains in productivity, which more than justify the meaningful wage gains we are likewise seeing — a testimonial to the pro-growth agenda.”
Still, there are signs that Shelton might clash with Trump’s vision. She has repeatedly called for the Fed to return to its pre-crisis approach to setting monetary policy, something that would require the central bank to shrink the massive portfolio of bond assets it purchased to prop up the economy.
The Fed is currently decreasing its balance sheet, another policy that has drawn the wrath of the president, who wants the process reversed to stimulate growth as he heads into his re-election campaign.
What's more, when Kudlow suggested in a 2016 tweet that Trump should put Shelton on the Fed board, he highlighted her support for a strong dollar. Yet multiple times in the past year, Trump has bemoaned central bank policies that have had the effect of strengthening the U.S. currency, which makes imports cheaper and exports more expensive, worsening the trade deficit that Trump has complained about for decades.
But Shelton is most known for her advocacy for returning to a gold standard, an idea rejected by almost all mainstream economists. She served as co-director of the nonprofit Sound Money Project.
