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Trump’s Controversial Fed Pick Faces Major Test in Senate Panel Vote

(Bloomberg) — Judy Shelton, President Donald Trump’s controversial pick to join the Federal Reserve’s Board of Governors, heads for a vote before the Senate Banking Committee on Tuesday without the public support of a majority of the panel.

Shelton, the former gold-standard advocate turned policy dove, and fellow nominee Christopher Waller, director of research at the St. Louis Fed, will finally receive their committee votes more than five months after appearing before the panel to answer questions. The committee will meet at 2 p.m. Washington time.

Some Shelton critics have warned that Trump might elevate her to replace Jerome Powell when his term ends in 2022. That’s assuming the president wins re-election in November and is unhappy with his current Fed chair, whom he’s recently praised after years of harsh criticism for too-tight policy.

Waller, a respected economist and Fed insider, is expected to win bipartisan support for his confirmation after Democrats during the February hearing voiced no strong objections to his appointment.

While the scheduling of a vote is typically a sign that a nominee will clear the committee, Shelton hasn’t yet obtained enough support in public.

Her unorthodox views on central banking and inconsistent stance on monetary policy have caused worries among a handful of Republicans. While Alabama’s Richard Shelby and Pennsylvania’s Patrick Toomey have signaled they will probably come around to support her, Louisiana’s John Kennedy has remained silent in public after voicing considerable concern over Shelton’s nomination.

‘Nutty Ideas’

“Nobody wants anybody on the Federal Reserve that has a fatal attraction to nutty ideas,” he told reporters following the Feb. 13 hearing, though he insisted that didn’t necessarily apply to either of the nominees.

Jess Andrews, a Kennedy spokesperson, declined to comment on the senator’s intention ahead of Tuesday’s vote.

With Democrats expected to vote in unison against Shelton, just one Republican “no” on the committee would be enough to block her confirmation. If her nomination has enough support in committee, she must still face a vote from the full Senate for final approval, where four Republican defections would be enough to sink her chances, assuming Democrats are unified in their opposition.

On at least one prior occasion, the Trump White House insisted on an up-or-down vote for a troubled nominee. In December 2017, Trump’s pick for the Export-Import Bank, Scott Garrett, was rejected by the Senate Banking Committee when two Republican senators joined Democrats in voting his nomination down.

A White House official expressed confidence that Shelton would have enough support for her confirmation to proceed from the committee to the full Senate.

Gold Standard

Shelton holds a doctorate in business administration from the University of Utah and acted as an informal adviser to the Trump campaign in 2016. She has long favored policies aimed at eliminating even very low inflation and advocated a return to the gold standard, fixing the value of the U.S. dollar to a weight of gold, a system the U.S. followed to varying degrees until 1976.

Those positions made her controversial to begin with, but since becoming a potential candidate for the Fed job in early 2019, she has reversed her views, even saying in June last year, well before the coronavirus pandemic, that she would seek to lower interest rates “as expeditiously as possible.” That prompted accusations she would simply do Trump’s bidding at the Fed.

She has also questioned the efficacy of the so-called dual-mandate goals set for the Fed by Congress, to seek stable prices and maximum sustainable employment.

‘Nebulous Objectives’

“I would probably be highly skeptical of those,” she said in an interview in May 2019. “Those are such nebulous objectives.”

The prospect of Shelton as a governor is not especially alarming to many of her critics. Their biggest concern is that Trump, if re-elected, might make her Fed chair when Powell’s term expired in February 2022, though that would require a separate Senate confirmation process.

Prior to the coronavirus crisis, Trump had criticized Powell repeatedly and threatened to remove or demote him. More recently, though, he has praised the Fed chief’s aggressive policy response to the pandemic.

David Wilcox, former director of the Fed’s domestic research and forecasting unit, said even as an isolated governor, Shelton could damage the complexion of the Fed as a non-partisan institution. But the largest peril, he said, would come if she were to reach the chair.

“The costs of having someone in the role of chair who clearly has instincts way outside the bounds of received wisdom, those costs could be just extraordinary for the U.S. and for the global economy,” he said.

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