Soft-Spoken Shelton Stirs Alarm Over Views as She Nears Fed Seat

(Bloomberg) -- For a soft-spoken and unfailingly polite figure, Judy Shelton is inspiring no shortage of fear in Washington right now, at least in certain circles.

The libertarian think-tank veteran moved a step closer to joining the Federal Reserve’s Board of Governors when the Senate Banking Committee on Tuesday approved her nomination to that post by President Donald Trump. Unless four Republicans emerge to oppose her confirmation when it reaches the full Senate, she will soon have a seat, and a vote, on one of the world’s most powerful policy making bodies.

So what’s all the fuss?

In short, she’s viewed suspiciously by many in central banking circles for policy views that are well outside the mainstream -- including a history of admiration for the gold standard -- and for being a political loyalist who might bend to Trump’s will. Shelton appeared to abandon her long-time advocacy for ultra-tight monetary policy when she emerged as a Fed candidate, publicly aligning herself with the president’s calls for lower interest rates.

What’s at Stake

If confirmed as a governor, she’d have the power of her vote for a term that expires in 2024. But with a declared fealty to Trump’s economic agenda, she could be favored by the president to take the Fed’s top job when Chair Jerome Powell’s term expires in 2022, if Trump is re-elected in November.

That said, if a victorious Trump promotes her to chair, she’ll face another Senate confirmation process. Were she approved, she would still have to persuade her colleagues to back her on policy.

The chair commands no vote beyond his or her own and could, in theory, be out-voted by the other members on the policy-setting Federal Open Market Committee. That’s never happened before.

Here’s a run-down of six areas where her comments have riled critics up:

Policy Flip-Flop

For many years, Shelton was a clear hard-money hawk. Low rates in her view eroded the value of money and enabled government profligacy. She repeated that sentiment as recently as May 2019, even as she was beginning to signal an affinity for cutting rates.

“Does it seem to help to get looser and looser money? Look at Japan, look at Europe with negative rates,” she told Bloomberg reporters and editors in May 2019.

A month later, she told the Washington Post: “I would lower rates as fast, as efficiently, as expeditiously as possible.”

Inflation

In the past, Shelton has advocated not just for low inflation, but zero inflation, in line with strict libertarian views on money stability.

“When I say sound money, it is based on the idea that money is this moral contract between governments and citizens,” she said in the Bloomberg interview.

She has repeatedly frowned upon the practice of central banks across the developed world to target inflation of at or near 2%.

Those targets “inevitably erode the purchasing power of currency over time -- so much for the notion that money should provide a store of value,” she wrote in 2012.

Fed Foe

She’s also railed against the Fed’s power, assigned to it by Congress, to regulate the value of money through a benchmark interest rate, calling it “almost a rogue agency” in a 2012 video interview.

That sentiment surfaced last year when she suggested that the Fed’s benchmark rate interferes with market forces.

“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?”

Dual Mandate Doubts

Shelton has challenged the goals set by Congress for the Fed to promote “maximum employment, stable prices and moderate long-term interest rates,” and particularly the conventional interpretation of that language to focus on inflation and employment.

“I would probably be highly skeptical of those, and keep pointing out that, to me, those are such nebulous objectives.” she said in May 2019. “Maximum employment. Well, I don’t know that that is really the Fed’s job.”

Fed Independence

Shelton vowed, unequivocally, in her confirmation hearing in February, to respect and defend the Fed’s independence. Yet in a September 2019 op-ed in the Wall Street Journal, Shelton took a more nuanced view.

“It would be in keeping with its historical mandate if the Fed were to pursue a more coordinated relationship with both Congress and the president,” she wrote. “When it comes to fulfilling the economic goals authorized by legislative decree, it isn’t seemly for a government agency to be selective.”

Gold Bug?

For many years, Shelton openly championed a return to the gold standard, a policy of fixing the value of the U.S. dollar to gold that the U.S. followed to varying degrees until 1976. She even supported the idea of a new Bretton-Woods-style international conference aimed at introducing a global monetary standard.

“I’m not opposed to a new Bretton Woods conference, and if it takes place at Mar-a-Lago, I’m fine with that,” she said in August 2016, referring to one of Trump’s Florida resorts.

“In terms of gold being involved, some people may think of that as a throwback, but I see it as a sophisticated, forward-looking approach because gold is neutral and it’s universal,” she said. “It’s a well-accepted monetary surrogate that transcends borders and time.”

Asked about those views at her February hearing before the Senate Banking Committee, Shelton retreated.

“I would not advocate going back to a prior historical monetary arrangement,” she said.

“You never go back with money,” she added, when pressed by senators. “It keeps moving forward into the future. And I’m surprised that people attempt to say they must have some thought about me advocating a gold standard.”

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