Fed Hopeful Shelton Questions Value of Bank’s Dual Mandate
Judy Shelton, a conservative economist being considered by the White House for a spot on the Federal Reserve’s Board of Governors, isn’t convinced the goals set for it by Congress are relevant for the U.S. central bank.
“I would probably be highly skeptical of those,” she said in an interview with Bloomberg Wednesday, referring to the mandate in the Federal Reserve Act that calls on the Fed to pursue maximum employment, stable prices and moderate long-term interest rates. “Those are such nebulous objectives.”
Currently U.S. executive director for the European Bank for Reconstruction and Development, she specifically questioned the employment mandate. “I don’t know that that is really the Fed’s job,” she said.
Shelton, who has so far not been nominated for the Fed vacancy, made the remarks in a wide-ranging discussion with Bloomberg journalists in Washington that revealed her willingness to challenge some of the fundamental notions of mainstream monetary policy and macro-economic thinking.
In addition to questioning the helpfulness of the Fed’s mandate, she also threw doubt on the wisdom of a central bank using benchmark interest rates to adjust the price of money, and thereby guide an economy toward a sustainable level of growth.
“A Fed that is too eager to artificially put in an interest rate that isn’t close to what the market would be suggesting is not so good,” she said. “I would try to be the voice saying, are you sure you know better than the markets?”
On jobs, she suggested the 3.6% rate of unemployment registered in April, a 49-year low, had more to do with President Donald Trump’s pro-growth policies than with a decade of historically cheap money the Fed delivered to help dig the economy out of the worst recession since the Great Depression.
Shelton -- who’s previously advocated for a return to the gold standard though she now says she wouldn’t push for that -- favors a monetary policy system that treated money as a fixed unit of measure.
“I believe in monetary clarity,” she said. “The unit of account has to be a reliable store of value. It’s a different mindset from money as a tool of government policy.”
Shelton, 64, separately said on Bloomberg Television Wednesday that she believes she’s being considered by the president for one of two vacancies at the Fed Board. Two previous candidates, economist Stephen Moore and businessman Herman Cain, withdrew this year after some Republican senators signaled their lack of support. Nominees to the Fed Board must be confirmed by the Senate.
The White House hasn’t made a short list of candidates for the Fed vacancies, but has a handful of names the administration is weighing as advisers continue to gather resumes, according to one person familiar with the matter. A fresh Fed nomination by Trump is not seen as imminent.
If Shelton got the pick, she would enjoy advantages over Moore and Cain.
With a doctorate in business administration from the University of Utah, including an emphasis on finance and international economics, she’s viewed as having more relevant credentials. In addition, she’s already been through a Senate confirmation process, winning approval in March 2018 for her EBRD post.
Potential Flash Points
Still, her unorthodox views could attract opposition. In addition to her thinking on the Fed’s congressional mandate, she has long considered almost any level of inflation, even the 2% targeted by the Fed, as a distortion of the free market that robs the public of the value of their money.
Inflation, as measured by the Fed’s favorite gauge, stood at 1.5% in the year through March. Asked whether that meant she would favor raising interest rates to lower it toward zero, she said she wouldn’t favor any move that would disrupt the economy.
“I’m very enthusiastic about the very difficult changes” that have taken place “under this administration -- the reduced regulation and the new business tax plan,” she said. “I don’t want monetary policy to mess that up.”
She has also in the past argued for a return to a gold standard, fixing the value of the U.S. dollar to a weight of gold, a system the U.S. followed to varying degrees until 1976. If appointed to the Fed, however, Shelton said she would not call for a return to the gold standard or for a sudden abandonment of other established policies.
“You don’t just walk in and say, ‘That’s it, that system’s over, abolish the Fed,”’ she said. “I’m saying, I think we can do better.”
Shelton did suggest that multiple countries might be better off agreeing to issue bonds linked to a neutral reference point, but declined to say what that reference point might be.
“People talk about sand or oil or water,” she said. “I hate to say it, but probably gold is more suitable. But I’m not looking to go back, I’m looking to go forward.”
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