On Feb. 13, the Senate Committee on Banking, Housing, and Urban Affairs will conduct a hearing on the nominations of Judy Shelton and Christopher Waller to the Federal Reserve Board of Governors, potentially defining President Trump’s monetary legacy.
From the earliest days of the 2016 campaign trail, Republicans made it clear that they were the only party that would take on our nation’s magnanimous Federal Reserve. Trump has been no exception. In fact, he has been surprisingly attuned to the notion of sound money as a platform for economic growth and stability.
On Bloomberg’s All Due Respect, then-candidate Trump lauded Paul Volcker, the former Federal Reserve chairman who helped lower inflation from 13.3% in 1979 to 3.2% in 1983. Trump said that he admired the fact that the former chairman was more concerned about inflation than full employment. Applauding Volcker’s rules-based approach, Trump went as far as to note that he was a role model for the type of Fed chief that he would pick.
Admittedly, Trump’s replacement for Janet Yellen, Jerome Powell, does not fit that profile.
Unfortunately for proponents of sound money, the initial prediction that his term would represent continuity with Yellen’s four-year term was confirmed in a recent press conference where he announced that the Fed would stick to its post-crisis “floor” system of monetary control. As the Cato Institute’s George Selgin previously warned, the Fed’s program to normalize monetary policy is coming to an end. The bank will “keep its emergency monetary powers and stick to its new methods of managing the supply of money in the economy indefinitely.”
Another round of quantitative easing could very well be on the horizon. No, it was not just a fever dream.
But Trump’s promise to bring real change to the Eccles Building is not off the table. It is alive and well in Judy Shelton, the former U.S. executive director of the European Bank of Reconstruction and Development and Trump’s most recent nominee to the Federal Reserve board.
Shelton is certainly a monetary maverick. She has faced skepticism from both sides of the aisle. She is, however, exactly what the doctor ordered if we want Fed policies tied more to rules and less to discretion.
Although Shelton has been accused of abandoning her old positions in favor of views more aligned with the president’s, her intellectual defense of sound money remains reliable. She has, after all, built a career around just that. She first entered the monetary spotlight when she predicted the economic collapse of the Soviet Union in 1989. She has since been a champion for sound monetary reform, defending the merit of the gold standard (at times in the form of convertible gold bonds), calling for rules-based monetary reform, and questioning the validity of the Fed’s dual mandate of price stability and maximum employment.
In a word, she recognizes, as Jefferson alluded to in his “Notes on the Establishment of a Money Unit,” that sound money is a necessary condition of a free society.
Last week, Sen. Elizabeth Warren penned a six-page letter questioning a “history of statements and actions” by Shelton and critiquing her “inability to make economic judgments divorced of political calculations.” In a word, Warren asserted that a Shelton confirmation would be plain crazy.
I had the privilege of working under Shelton while she was director of the Atlas Network’s Sound Money Project. In 2015, while at an event in Jackson Hole, Wyoming, she anticipated Warren’s sentiments and answered eloquently. In a room full of concerned citizens, policymakers, and monetary experts alike and just down the road from where the Kansas City Fed was holding its yearly Economic Policy Symposium, Shelton noted:
“Is it crazier than having hordes of financial market analysts parsing every word uttered by a monetary official, obsessing over the minutes of the latest Fed meeting, trying to glean clues about what must happen next? It’s almost as if we’ve forgotten how to engage in free enterprise because we’re waiting for marching orders from a central planning agency. I think we’re the rational ones. They like to brand us as ideologues, but, in truth, we’re the realists, and that sobering fact is becoming clearer every day as reality continues to whipsaw global markets.”
This Thursday, Shelton will defend her position before the Senate. The question is, what would be crazier: for the Senate to confirm a bona fide defender of our currency or to allow the Fed to continue to march at the beat of its own unruly drum?
