The Fed Doesn’t Need This Kind of Disruption

Amid the chaos of the Trump administration, the U.S. Federal Reserve has stood out as an island of professionalism. Its policies aren’t always beyond reproach, but it responded quickly and competently to the shock delivered by the coronavirus pandemic and has remained focused on its mandate of promoting employment and stable prices.

If the Senate Banking Committee wants to keep it that way, it should think twice before confirming Judy Shelton’s nomination to the Fed’s Board of Governors.

The administration has made some commendable appointments to the Fed. They include Chairman Jerome Powell and Vice Chairman Richard Clarida, both of whom have capably led the central bank through difficult times. There’s every reason to believe that Trump’s nominee to fill another vacant board seat — Christopher Waller, head of research at the St. Louis Fed — would also make a valuable contribution.

Shelton, however, is a different case. She presents herself as a disrupter, but it’s hard to know what kind of disruption she would pursue if confirmed. She was long an ardent supporter of a return to the gold standard, a defunct system that entailed making the dollar convertible into a stable amount of the precious metal. More recently, before the pandemic hit and as her nomination was in train, she did an about-face, aligning herself with Trump’s demands for the Fed to stimulate growth by lowering interest rates.

Either way, Shelton is unlikely to be a reliably stabilizing force at a time when stability is needed most. A gold-standard stalwart might drag the central bank back into a discussion best left in the dustbin of history. (In a 2012 poll of some 40 prominent economists, not one advocated bringing it back.) If Shelton instead advocated whatever monetary policy the president might like, that would present a different problem. The Fed has kept inflation in check for more than three decades by keeping its distance from politics. When Trump criticized its interest-rate policies last year, Chairman Powell rightly insisted that the Fed is independent. If a more malleable governor weakened that hard-won status, the economic consequences would be dire.

This risk would be all the greater if Trump won a second term. In that case, Shelton would be in a position to take over from Powell, whose current term ends in 2022.

The Fed’s Board of Governors does need more diversity of voices and perspectives, so it can better shape policies to benefit all Americans. There are plenty of other candidates who could offer fresh insights without bringing needless uncertainty to the conduct of monetary policy. The banking committee would be wise to ask the president to think again.

Editorials are written by the Bloomberg Opinion editorial board.

©2020 Bloomberg L.P.

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