Just before Tuesday’s vote, Sen. Mike Crapo (R-Idaho), chairman of the Banking Committee, said Shelton had provided clear answers during her confirmation hearing, and afterward, to questions related to her views on Fed independence, the appropriate response to economic crises and the gold standard. Crapo said Shelton has made clear that a top priority in responding to a sudden economic crisis should be restoring consumer and business confidence, including through Fed emergency tools such as reducing interest rates and quantitative easing.
Crapo dismissed calls from the Democrats on the Banking Committee for another hearing to vet Shelton.
“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,” Crapo said.
He continued, “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.”
All 12 Democrats on the Banking Committee opposed Shelton’s nomination.
“When we have no leadership from our president and the Federal Reserve chair is one of the only leaders trying to guide our recovery, putting one of the president’s close advisers on the Fed Board will only make things worse,” Sen. Sherrod Brown (D-Ohio), the top Democrat on the banking panel, said before the vote. “The last thing we need right now is more price volatility and instability that will only end up hurting working families and businesses more. This is why independence matters.”
At a separate Banking Committee hearing Tuesday morning, Sen. Elizabeth Warren (D-Mass.) said that “confirming Judy Shelton to the Federal Reserve is a mistake, and it will endanger our economy.”
Also Tuesday, the committee approved the nomination of Christopher J. Waller, a St. Louis Fed economist, to the Fed Board with a more bipartisan vote of 18 to 7. Waller’s advancement to the full Senate was much less controversial. Within the Republican Party, Waller and Shelton are viewed as a complementary duo. Shelton is seen as upholding the deregulatory views of more-conservative economists, while Waller’s background as a macroeconomist represents more of the party’s mainstream.
Brown voted against Waller’s nomination, saying he was concerned that Waller would not hold the largest American and foreign banks accountable and that he would not advocate for policies that help Main Street, not just Wall Street. In addition to setting monetary policy, the Fed also supervises and regulates parts of the banking system.
“Now is not the time to lower capital standards, weaken stress-test requirements and roll back important financial protections,” Brown said.
The Fed has not operated with a full board for years and recently has gone with two empty seats after President Trump’s previous nominees fizzled out. Fed nominees tend not to have their support split along party lines. Yet it is expected that when Shelton’s nomination is put before the full Senate — where Republicans hold the majority — there will be a sharp divide.
In addition to her views about the gold standard, Shelton has said the Fed harnesses too much power and should be kept in check. Shelton has alarmed lawmakers and economists who say Trump has already exerted undue public pressure on the Fed and its independent authority. Before the current recession, Trump often lashed out at Fed Chair Jerome H. Powell, accusing him of doing too little to boost the economy. Trump has since called Powell his “most improved player.”
If Trump is reelected in November, there is speculation that he will not renominate Powell as chair when his term expires in 2022. Shelton’s critics worry Trump would tap her as Powell’s replacement, putting her in a significant position of power over the central bank.
Claudia Sahm, a former Fed economist, acknowledged that Shelton’s views on the gold standard, for example, are on the fringe. Sahm said she was more alarmed by Shelton’s views on the Fed’s independence.
Sahm said that as a Fed governor, Shelton alone would not have the power to sway her fellow policymakers. But during an economic crisis, when so much depends on the central bank, Sahm said she wished Shelton was seen less as an outlier and instead as more of “a contributor to the work the board has to get done.”
“If she goes off in a really different direction as a governor, she will not be able to do damage,” Sahm said. “And yet, she’s not going to add value. And we need value.”
Back in February, after a confirmation hearing, several Republicans on the Banking Committee expressed concerns about Shelton’s economic policy views. Opposition from only one Republican on the panel could have thwarted Shelton’s chances of advancing.
Months ago, Sen. Patrick J. Toomey (R-Pa.) said he was unsure whether Shelton could maintain the central bank’s independence, which is core to the Fed’s reputation and economic authority. Sen. Richard C. Shelby (R-Ala.) said Shelton “could be an outlier” for the role. Both lawmakers later said that they would support Shelton.
That left Sen. John Neely Kennedy (R-La.), who was also wary about Shelton’s track record, as a crucial vote. On Monday evening, Kennedy signaled he would rally behind Shelton, essentially guaranteeing a simple majority Tuesday.