Politicize the Fed — just not with Judy Shelton


President Trump has not had an easy time appointing new members to the Federal Reserve’s Board of Governors. His latest pick, Judy Shelton, doesn’t look like she’ll improve the streak: Shelton got grilled by the Senate Banking Committee on Thursday, and several Republicans as well as the committee’s Democrats were left underwhelmed. Both Sens. Patrick Toomey (R-Pa.) and Richard Shelby (R-Ala.) expressed “concerns” after the hearing.

The fundamental complaint with Shelton among mainstream observers is that she would “politicize” the Fed. But that’s an idea that deserves to be picked apart a bit, because there are actually good and bad ways “politicizing” the Fed could go.

No doubt, Shelton comes off as someone who would basically do whatever Trump tells her to. For years she’s advocated a return to the gold standard, a stance that’s frankly quackery. It would also generally lead to tighter monetary policy and higher interest rates, which Shelton called for in the depths of the Great Recession — a genuinely madcap position to take. Recall that the Fed’s job is to balance job and wage growth against the risk of inflation, by raising interest rates to cool off the economy, and lowering them to give it a boost. Higher interest rates immediately after 2008 would’ve made the recession worse.

But Trump has made his desire for lower interest rates — so he can boast of a stronger economy — quite clear. In the last year or so, once she was in consideration for Trump’s appointment, Shelton suddenly started advocating lower interest rates, and backed away from the gold standard at the hearing. She’s pressed for other radical changes, like getting rid of federal deposit insurance, which she also disavowed last week. “There does seem to be a pattern of total flip-flopping,” Sen. Chris Van Hollen (D-Md.) said at the hearing. “The only pattern that I see here is a political one, not an economic one, and I think that’s what concerns a lot of people.”

This is where we need to make a crucial distinction: Is Shelton the sort of person who would do whatever Trump specifically — and, by extension, the right-wing infrastructure around him — would tell her to do? Or would she simply do whatever the president and Congress tell her to do, whoever may be in charge in those two branches?

There is a profound difference between the two propositions. A Fed official who takes orders from a specific politician or group of ideologues would be craven and dangerous. Other tidbits from Shelton’s past, particularly her indifference to her duties while U.S. director of the European Bank for Reconstruction and Development, suggest she may well be more interested in ensconcing herself in a particular crowd of powerful benefactors than actually being a committed public servant. Let’s say Trump successfully gets Shelton onto the Fed, and then loses to a Democrat in November. Would Shelton deliberately try to …read more

Source:: The Week – Politics

      

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