On Tuesday the US Senate Banking Committee approved the two nominees put forward by Donald Trump for the Federal Reserve’s Board of Governors. Currently, only 5 of the 7 Board of Governors positions are filled.
The approval process still has further to run as the candidates also have to be approved by a full Senate vote. Approval for Christopher Waller, director of research at the St. Louis Fed, looks to be more straight-forward with the banking committee voting 18-7 in favour. In contrast, Judy Shelton’s nomination is much more controversial. Ms Shelton has been criticised for having a number of unorthodox views and was an economic adviser to President Trump’s 2016 Presidential campaign raising some concerns about her independence and some of her past commentary has also triggered questions about her belief in Fed independence. The Senate Banking Committee vote for her nomination was a closer call, split along Republican-Democrat party lines, voting 13-12 in favour.
Senator Mike Crapo, Chairman of the Senate banking Committee, commented “Many have tried to characterize Dr. Shelton’s views of the gold standard and monetary policy as outside of the mainstream thought and disqualifying for this position, and I strongly disagree with these characterizations,” and “I am confident that her deep understanding of the Fed’s monetary policy tool kit, monetary history and commitment to maintaining Fed independence will serve the Fed well in its ongoing efforts to stabilize markets, and toward its mission of price stability and full employment.” More specifically on the issue of independence he stated: “Let me clear the record: On Federal Reserve independence, in response to one of my questions, Dr. Shelton said, ‘I believe that the independence of the Federal Reserve is a vital aspect of its credibility with the public. Congress has granted tremendous powers to the Federal Reserve, and citizens have to be assured that monetary authorities will be relying on their own best judgment and their own analytical capabilities in making their decisions, not subject to political pressure.’
Given the party-line division of the Senate Banking Committee vote, the Republican majority of 53-47 in the Senate is likely to be important for Shelton’s controversial nomination to have a chance of getting confirmed. That said, the committee structure for policy decisions at the Federal Reserve does limit the impact of any one individual on policy. Monetary decisions are taken by the FOMC whose voting members comprise the Board of Governors and 5 Regional Fed Presidents. What is potentially more unsettling for some is if Trump is re-elected as President later this year, will he reappoint Jerome Powell as Fed Chair for a second term in 2022, or instead look to another board member.