Nuggies Op Ed: Judy Shelton
Guest Writer Jason Reed Writes on A Divisive Candidate for the Fed's Board of Governors
This is the first of more Op Eds to come, which we are excited to roll out as another way of delivering high quality commentary on a regular basis. If you’re interested in guest writing for Nuggies, please reach out.
This Op Ed is written and prepared by Dr. Jason Reed, Professor and Director of Undergraduate Studies in the Finance Department at the Mendoza College of Business at the University of Notre Dame.
The name Judy Shelton is probably one that you haven’t really heard before this week. However, it’s a name that you should certainly pay attention to, since she’ll likely fill one of two vacant seats on the Federal Reserve Board of Governors.
For those that may need a reminder, the Federal Reserve is the central bank of the United States. Split into twelve districts, each with their own president, the Board of Governors is the governing body of the Federal Reserve System. Each of the seven members of the Board of Governors have a seat on the monetary policy determining Federal Open Market Committee (FOMC). And don’t forget a seat on the Board of Governors is a 14-year appointment. Along with staggered appointments, the 14-year terms prevent political bias affecting monetary policy decision making.
But wait, let’s backup and start at the beginning of Trump’s presidency.
When President Trump took office there were two vacant seats on the Federal Reserve's Board of Governors. This group of seven, led by Jerome Powell, oversees the reserve banking system and implements monetary policy.
As a reminder, the Fed has a dual mandate of full employment and stable prices, targeting a 2% inflation rate. Major monetary policy decisions are debated and crafted within the board of governors.
Over the last four-ish years, the board of governors seats have remained unfilled. Two notable nominees were not confirmed by congress - Marvin Goodfriend and Nellie Liang. Two more, immediately controversial candidates were announced - Steve Moore and Herman Cain - but were never officially nominated.
So here we are, two vacant board seats and four-ish years later, listening to congress and the president discuss and debate Judy Shelton’s credentials and her ability to be a part of the most important monetary policy governing body in the world.
Not only do her policies call for lowering the interest rate indefinitely (a stance she recently adopted from Trump’s tweets), but also a zero percent inflation target. Shelton also has dangerous policies that advocate a return to the gold standard and criticize the Fed’s dual mandate (of maximum employment and stable prices). However, her most dangerous view is a call for a politically partisan Federal Reserve.
Shelton, is an outspoken critic of the federal reserve. Trump views this as a badge of honor, while almost everyone else is fearful of this rhetoric. Shelton is not just a critic of Fed policy, however, but to quote her, the Federal Reserve is “almost a rogue agency”. When you listen to Shelton, her agenda aligns perfectly with the views of the current administration. She does not mince her words, and recently commented that she saw “no reference for [political] independence” when reviewing the original legislation for the Federal Reserve. These comments surely were made to support President Trump’s 2019 twitter criticism of Jerome Powell. At the time, Trump wanted to lower the interest rate, as the economy was continuing its longest economic expansion in history, even calling for negative interest rates. Her recent flip-flop on interest rates was like hearing Trump’s words spoken directly by Shelton. Her appointment would certainly end the long history of Fed independence.
To put an exclamation point on the severity of her views, Shelton even shilled for Trump’s Mar-O-Lago as a place to conduct global monetary policy.
Even though Shelton’s rhetoric is dangerous, it's really meant to engage a political audience and not to change policy direction. Her monetary policy ideas will get drowned out by the other board of governors, meaning her views will have all bark and no bite. Not to mention that her term is linked to the previous president of the Fed, Janet Yellen, and would expire in two short years.
Now that we’re all caught up, why has Shelton been in the news recently? Well, her nomination has been idled since January, when Republican sub-committee members wouldn’t vote in favor of her nomination. Now, however, those same Republican senators have decided to stand aside and clear the way for a party line vote in the full senate.
If confirmed, her constant, vocal criticism of the Fed will be at best ammunition for political pundits and at worst an echo chamber for Republican lawmakers, including President Trump. If Trump wins reelection in November, he will be able to nominate a new Federal Reserve president, replacing Jerome Powell in 2022.
Judy Shelton is a name you’re going to be hearing a lot about in the next few weeks. Hopefully, the final words we hear on Shelton is that: the vote to confirm has failed.
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