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Trump nominee for Fed seat gets cold shoulder from senators

WASHINGTON — Senators from both parties expressed significant concerns about one of two pending nominees for the Federal Reserve Board, raising doubts about her confirmation.

Judy Shelton, an adviser to President Trump, endured tough questioning from Democrats and Republicans at her Senate Banking Committee hearing Thursday. Lawmakers sounded skeptical of her views regarding the need for deposit insurance, whether the Fed should be independent from outside influence, and some of her past statements on monetary policy.

Sen. Pat Toomey, R-Pa., said he has not made up his mind on how he will vote on Shelton's nomination and he is “not sure” if she has been consistent in her writings and comments. He joined two other Republicans who said they were undecided about Shelton.

“I remained concerned she is an advocate for using monetary policy to devalue the dollar in what could easily devolve into a downward spiral,” said Toomey, the No. 2 Republican on the commitee.

Judy Shelton testified along with Christopher Waller, research director of the Federal Reserve Bank of St. Louis, after the Trump administration announced plans last month to nominate both to open seats on the Fed board.
Judy Shelton testified along with Christopher Waller, research director of the Federal Reserve Bank of St. Louis, after the Trump administration announced plans last month to nominate both to open seats on the Fed board.

Shelton testified along with Christopher Waller, research director of the Federal Reserve Bank of St. Louis. The Trump administration announced plans last month to nominate both to open seats on the Fed board.

The committee focused their questions most heavily on Shelton, who follows other controversial names floated by the administration for the central bank that elicited skepticism in Congress.

With at least three Republicans on the committee sounding unsure about her nomination, Shelton's confirmation could be in jeopardy. Republicans only have a 13-12 majority on the Senate Banking Committee, which needs to vote on her nomination before the full Senate votes. Following the hearing, some published reports suggested the administration may withdraw her name from contention.

When asked by reporters about Shelton's nomination, Sen. Richard Shelby, R-Ala., said, "I am concerned." Shelby is a former chairman of the committee.

“I ask, is she an outlier or is she mainstream?” Shelby said. “Well, she could be an outlier.”

Sen. John Kennedy, R-La., told reporters he didn’t mind that Shelton may have changed her views on certain issues, but he too hasn’t decided if he will vote to confirm her.

“I’m undecided,” Kennedy said. “I admire people who test their assumptions against the arguments of their critics. It doesn’t bother me that someone having done that changes their mind on a decision. … At the same time, nobody wants anybody on the Federal Reserve that has a fatal attraction to nutty ideas. Now I’m not saying that’s the case here. But that was sort of the dialectic going into the office.”

During the hearing, Sen. Sherrod Brown of Ohio, the committee's top Democrat, raised alarm about Shelton's suggestion that deposit insurance leads to risky behavior.

“In multiple writings, Ms. Shelton clearly voiced her opposition to FDIC deposit insurance — the insurance that protects the savings of hard-working Americans,” Brown said. “In other words, she thinks that if a bank fails — and we all remember from 2008, they do indeed fail — then all the families whose savings and paychecks are stored in that bank should just lose all their money.”

In response to senators, Shelton said that she “fully supports deposit insurance.”

“This idea that I am somehow against deposit insurance, I try to find out where that even came up,” Shelton said. “I said that if there is government insurance, in theory a bank might engage in risky financial behavior.”

Shelton later added that she thinks that bank owners should be subjected to the costs if a bank fails, not the government.

“I was merely using an example to explain moral hazard by suggesting that in the presence of government insurance the owners of a bank, of a failing bank may be motivated to engage in more risky behavior than they would in the absence of government insurance,” Shelton said. “And I think that the owners of the banks should pay the brunt of the cost of paying for failure rather than having the government step in.”

Several lawmakers and experts have also questioned Shelton’s commitment to the Fed’s independence, particularly as President Trump has been publicly critical of Fed Chairman Jerome Powell and his decisions on interest rates.

Shelton said that she thinks it is appropriate for anyone to criticize the Fed.

“I do believe that every American, every member of Congress and even the president has the right to criticize the Federal Reserve,” she said.

Yet she later suggested that, if confirmed, she would work to honor the Fed's independence.

"Congress created the Fed as an independent agency and gave it a monetary mandate to promote maximum employment, stable prices and moderate long-term interest rates and that is the framework under which I would make decisions if confirmed,” she said.

But even Waller was hesitant when asked by Brown if he would hire Shelton to work in his research arm at the St. Louis Fed.

“I have a very different research department in terms of the type of academic research we do. Judy has been much more in the public light in terms of her research. My department is all publishing for academic journals,” Waller said. “Where her outlets are and what we expect [of] our staff, there are just two different outlets for ... research.”

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