Trump’s nomination of Shelton comes after he has spent more than a year bashing the central bank for not lowering interest rates enough to spur faster economic growth. An ally like Shelton, with her recent embrace of low rates, could be more sympathetic to his wishes.
Shelby was among a number of Republican senators on the Banking Committee who signaled a willingness this week to support Shelton but suggested that she needs to clarify where she stands on those and other policy issues. These include questioning the basis for the Fed’s independence from political influence — often regarded as a pillar of the central bank’s credibility — and calling for the abolition of federal deposit insurance for banks.
Shelton, an author with a PhD in business administration, will face a delicate balancing act as she attempts to persuade lawmakers that she isn’t going to use her perch at the central bank to advocate for the gold standard — a policy Shelby referred to as monetary “shackles” — and that she is sufficiently independent from the president. If confirmed, she would have a seat on the Fed until 2024.
Trump’s previous Fed picks Herman Cain and Stephen Moore flamed out in the GOP Senate in part because some lawmakers were uneasy about their close political ties to the president; the central bank is designed to be insulated from short-term politics so it will act in the long-term interest of the economy.
Shelton’s doubts about the central bank’s need to operate without influence from politicians could raise similar alarms. “I don’t see any reference to independence in the legislation that has defined the role of the Federal Reserve for the United States,” she said last year, according to a transcript of a private interview available to clients of the Swiss bank UBS.
While for years she slammed low interest rates for punishing savers and rewarding wealthy investors, she now supports cutting rates, which are near historic lows. And she once criticized the central bank for “appeasing financial markets” but last year said the Fed shouldn’t “pull the rug out” from investors.
Shelton did not respond to a request for comment on this story.
Sen. Mike Rounds (R-S.D.), for one, is brushing off any concerns and said he has no objection to confirming her.
“I had a good visit with her about her previous discussions and so forth, and I thought she understood her role,” he said, including that senators intend for the central bank to be politically independent.
Rounds said he had also pressed Shelton about her support for tying the dollar’s value to gold “and that’s not necessarily her position today.”
Indeed, Shelton told POLITICO last year that it was “wildly off-the-mark to suggest … I am itching to return to the gold standard or some other radical proposal,” suggesting she was instead seeking “incremental change.”
“She understands this is working,” Rounds said of current Fed policy. “She likes the direction that we’re going, and I actually had a very good discussion with her on the issues, and I did not feel that she would be out of step with the rest of the board.”
“The fact that she has looked at and contemplated several different approaches shows that she has been open-minded, and I don’t think she will be a disruption,” he added. “I think she will be a team member, but she most certainly has the ability to ask questions and to offer different alternatives, so as far as I’m concerned, I think she’ll be a good addition to the board.”
Sen. Thom Tillis (R-N.C.) said he was pleased with answers she had given him privately about her commitment to pursuing good policy over partisan politics.
“She answered my questions to my satisfaction in the office,” he said. “We’ll see how she responds in committee.”
He also said that while Fed independence is important, “there are some opportunities for the Fed to be a bit more accountable to Congress than they are today.”
Democrats on the committee will likely criticize her over 2009 comments in which she said she was “so tired of the criticism … of Wall Street greed” as the cause of the 2008 financial crisis. The government “had much more to do” with causing that catastrophe by distorting risk in private markets, she said.
They are also expected to zero in on her call to end federal deposit insurance, a cornerstone of the financial system since the bank runs of the Great Depression. She argued in her 1994 book, “Money Meltdown,” that “government should not intervene in that private business activity.”
Sen. Elizabeth Warren (D-Mass.) slammed Shelton in a six-page letter last month, in which she said the nominee had a “history of inaccurate and radical statements.”
If she is confirmed along party lines, Shelton would be the only sitting member of the central bank board who didn’t receive at least 60 votes. All but one of the five current board members were appointed by Trump.
Still, not every lawmaker will be focused on her previous statements.
“My questions will be driven by long-term systemic challenges to employment in our nation, which will be the gig economy and technology,” Sen. Tim Scott (R-S.C.) said. “I’m not asking about the challenges that others have raised about what she’s said in the past.”