GOP Senator: Fed Nominee Could Take America On ‘A Very, Very Dangerous Path’

Feb. 14--Some of the Republican Senators who rallied to President Trump in his historic impeachment trial weeks ago reminded the White House Thursday that their votes can't always be counted for granted, at least when it comes to adding members to the nation's top economic policy-making panel, the Federal Reserve Board.

The Senate banking committee held a hearing this morning on two Trump-backed candidates, Fed economist Christopher Waller and political activist turned Trump adviser Judy Shelton. The selection is especially important because it would ensure a GOP Fed majority well into the next Presidential term, writes Brian Gardner, political analyst in the Washington office of Wall Street investment bank Keefe, Bruyette & Woods, in a note to clients.

"Republicans only have a one-vote margin on the Banking Committee," so a nominee like Shelton, opposed by Democrats, "cannot afford to lose a single Republican vote," Gardner said later in an email.

Sens. Pat Toomey, R-Pa., and Richard Shelby, R-Ala., "were the most skeptical Republicans of the ones who attended the hearing and asked questions" of Shelton, Gardner added.

Trump has leaned on Fed members to cut interest rates. Cheap money helps the U.S. Treasury slow the cost of interest in the national debt as it struggles to finance record budget deficits. Low rates also encourage more Americans to borrow money, in hopes of keeping the economic expansion of the past 10 years going.

Cheap money from the Fed has reduced business borrowing costs, but has had only mixed results for U.S. consumers: home mortgage loan rates are near historic lows, but auto loan rates are rising, and credit card rates are now higher than at any time since before the last recession, as individual Americans borrow faster than their wages rise, according to Federal Reserve data.

Trump nominee Waller, a former Notre Dame University professor who heads the economic research staff at the Federal Reserve Bank of St. Louis, provoked little concern from Democrats or Republicans on the committee. "Sounds like a shoe-in," commented Guy LeBas, fixed-income chief at Janney Montgomery Scott, the Philadelphia investment bank.

But fellow Trump nominee Shelton, who has supported what mainstream economists consider a quixotic return to the gold standard as a base for the dollar, while variously endorsing and opposing low interest rates, import tariffs and "open borders" immigration, was questioned by members of both parties.

While liberal Democrats including Sen. Sherrod Brown, D-Ohio, criticized her affinity for gold and her changed positions, Republican Toomey challenged Shelton from business and conservative angles.

"You believe the Fed should actively seek to devalue our currency, if other countries are doing that, and I think that's a very, very dangerous path to go down," Toomey said. "Beggar-thy-neighbor mutual currency valuation is not in our interest. And it's not in the mandate of the Fed to pursue it. I don't think it's achievable."

Shelton defended her unorthodoxy by arguing that the Fed should include "intellectual diversity," LeBas wrote, before adding his own view: "Her type of diversity--marked most clearly by an inconsistent and seemingly random economic framework--isn't a good thing."

Shelby, said the gold standard was worth looking at from a historical perspective, but added that the Fed "must look to the future."

Shelby had said he hoped to support Shelton, while Toomey has called himself undecided.

Toomey is on record supporting Fed independence from "political pressure," while Shelton has, since Trump's election, written approvingly of the Fed coordinating its actions with both the President and Congress -- historically a left-wing position held by populists who believe the central bank should be accountable to the people, or at least their elected representatives.

Bankers and economic conservatives tend to prize the Fed's independence, arguing that politicians prefer to artificially cut rates and inflate the economy when seeking re-election -- risking recession as private and public debt balloons.

Trump in 2018 replaced Fed chairman Janet Yellen with Jay Powell. Powell cut interest rates -- though not as much as Trump has demanded -- after Yellen raised them from historic lows.

Two earlier Trump Fed nominees with atypical backgrounds, economics commentator Stephen Moore, who preceded Toomey as a president of the conservative Club for Growth, and Herman Cain, former chief executive of Godfather's Pizza, both withdrew from consideration after bipartisan criticism.

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