The Fed’s Independence Should Not Be in Doubt

With the Senate being called back into session this week, there’s good reason to be concerned the GOP led Senate may approve President Trump’s controversial nominee to the Federal Reserve Board, Judy Shelton, who believes the Fed should not be independent from politics. She is the wrong person, holding the wrong views at the wrong time for our badly damaged economy. She should not be confirmed.

These are extraordinary times for our nation. The coronavirus has shuttered America’s private sector while consumers stay home in an effort to avoid exposure to the virus. This historic freezing in place of our economy is felt by all of us. In response, Congress has passed $2 trillion in assistance to America’s businesses and more is probably on the
way. Congress has also given the Federal Reserve unprecedented authority to set fiscal policy to supplement the Fed’s traditional financial/monetary powers.

Experts say the Fed essentially has unlimited power to lend during this crisis, including directly to banks, companies and state and local governments. Some economists estimate the Fed’s portfolio will grow from $4 trillion last year to $8 to $11 trillion this year. That would make its role in the economy greater than in the Great Depression or in WWII. With the Fed’s new power over the economy, now is not the time for the Senate to confirm Ms. Shelton whose views on the economy are out of the mainstream.

History is repeating itself when it comes to Trump’s unfit nominees to the Federal Reserve. Lest we forget, Trump floated the idea of nominating the unqualified Stephen Moore to the Federal Reserve Board earlier last year. Moore, who had not only some personal legal problems, also believed in some pretty wild ideas about the economy and the role of the Fed. After an uproar of opposition ensued, that trial balloon burst and we haven’t heard much from Mr. Moore since.

Similarly Trump had previously announced he was going to nominate Herman Cain, a former CEO at a national pizza chain and one time GOP presidential candidate to the Fed Board. He eventually withdrew his name from consideration after it was discovered Cain had some embarrassing issues in his background.

Now comes Trump proposing Ms. Shelton for a seat on the Board. She has indicated the Federal Reserve should be less independent from the executive branch, mouthing Trump’s position and some in congress who wanted to weigh in on the Fed’s decisions dealing with the economy.

However, the coronavirus has silenced the carping by Fed critics, including members of congress. These circumstances have isolated Ms. Shelton from fellow Republicans who extended unprecedented independent fiscal and financial powers to the Fed. Now the politicians in congress have basically given the Fed a blank check to proceed in more inventive ways. Doing so also shields the congress from criticism if things go from bad to worse.

As if losing the Fed’s independence wouldn’t be bad enough, Shelton has advocated radical ideas including a return to the gold standard that could limit the Fed’s ability to respond to U.S. inflation and unemployment and doing away with the FDIC insuring of bank deposits. Neither one of these positions is mainstream and should garner little support with the public. The senators who support this nomination will do so at their own political peril.

In my opinion we don’t need the president or Ms. Shelton making decisions on interest rates and other monetary policy. Trump couldn’t make a go of it with casinos and then took bankruptcy a number of times. What could go wrong at the Fed with his handpicked Board member who wants more control from the president?

When Obama was president, Shelton was a part of a small partisan minority who advocated higher interest rates when the economy was trying to get back on its feet after the great recession. Prior to this year, the politics having changed, she mimics Trump’s call for lower interest rates. Now with the economy in free fall, she might want to wrongly return to a high interest environment that would be disastrous. It’s not an overstatement that if confirmed, she will be Trump’s fox inside the proverbial hen house and would be a major disruptive force at this very important and challenging time for our nation.

The Senate should not confirm her.

Tom Coleman is a former Republican Member of Congress from Missouri. He has served as an adjunct professor at the Robert F. Wagner Graduate School of Public Service at New York University and at American University.