NEW YORK (Reuters Breakingviews) - Donald Trump has reverted to a more traditional approach with his latest nominees to the Federal Reserve’s board. Judy Shelton is a maverick with her liking of the gold standard, yet her business background might usefully add to the policy debate. And she’s paired with Christopher Waller, an insider at the central bank’s St. Louis operation.
The contrast with the underqualified partisan hacks the president put forward earlier this year is stark. Commentator Stephen Moore and businessman Herman Cain both withdrew from consideration in the face of widespread criticism. Despite Trump’s frequent criticism of the Fed and its chairman, Jerome Powell, the candidates named on Tuesday fit better with the relatively impartial and academically inclined norm.
That said, Shelton’s views are anything but orthodox. She has long advocated a return to the gold standard for the U.S. dollar, something most economists regard as a deflationary regime that would curb the Fed’s ability to respond to an economic downturn. She has also criticized the central bank’s post-crisis policies of zero interest rates and bond buying.
She has changed her tune in recent weeks, arguing that the Fed should be cutting rates to allow the administration’s tax cuts and deregulation to benefit the economy. That seems expedient, perhaps indicating that Shelton will in fact reflect the president’s views at the Fed. She was, however, confirmed with no difficulty by the Senate in 2018 for her current post as the top U.S. executive representative at the European Bank for Reconstruction and Development.
Waller, meanwhile, fits a more traditional mold, having co-authored a recent paper arguing that bond purchases by the Fed can stimulate the economy when rates are at zero. He has also stressed the importance of central bank independence from political interference.
Both boast qualifications that ought to be sufficient for the job, and their nominations don’t directly threaten the Fed’s independence. Yet any board member, including Shelton, could be in the running to be the next chair if Trump wins re-election and seeks to replace Powell in 2022.
For now, though, having a critic like Shelton inside the tent could even help insulate the Fed from further pressure. At the very least, this time the president’s candidates clear the bar.
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