Trump’s Fed pick cast doubt on central bank independence

Bloomberg

Judy Shelton, one of President Donald Trump’s most recent picks for the Federal Reserve board, challenged an article of faith regarding the US central bank in private comments to a bank executive last month: that it should operate free of political influence.
Shelton shared her views on monetary policy and the Fed with Beat Siegenthaler, global macro adviser for UBS Group AG, after speaking at an event on October 18 in Washington on the sidelines of the International Monetary Fund annual meetings.
“I don’t see any reference to independence in the legislation that has defined the role of the Federal Reserve for the United States,” Shelton told Siegenthaler, according to a transcript of the interview.
Shelton confirmed she had spoken with Siegenthaler and a UBS spokesman declined to comment. The transcript was shared with the bank’s institutional clients, according to a person familiar with the matter.
If people were to read the law, “they would see that it demands that the Board of Governors of the Federal Reserve work hand-in-hand with Congress and the president to meet certain strategic economic goals for the US,” Shelton added.
It is unusual for someone the president intends to nominate for the Fed board to speak publicly before the Senate considers her for the post, and even rarer for a Fed nominee to question the central bank’s independence. The remarks may complicate Shelton’s nomination, should Trump proceed to send it to the Senate. The White House has yet to officially nominate Shelton or another person Trump has said he intends to put on the Fed board, the St Louis Fed’s director of research, Christopher Waller.
Delayed Nominations
Some Republicans on the Senate Banking Committee, which would consider Shelton’s nomination, have expressed concerns about her to the White House, citing her unconventional views on monetary policy, according to people familiar with the matter. Shelton and Waller’s paperwork was expected to be sent to the Senate in September, but now may be delayed until next year as the White House waits for the candidates to complete ethics requirements, the people said.
They asked not to be identified discussing a personnel matter. The White House didn’t immediately comment.
Shelton agreed to an interview with Siegenthaler because she had seen him conduct similar question-and-answer sessions with other notable economists, she said in an email. She was not compensated for her time with the UBS economist, she said.
Before Trump, presidents were measured in their public criticism of the Fed in order to avoid appearing as if they sought to influence the central bank’s conduct of monetary policy. Fed independence is considered a given among investors who buy US debt, financing the government’s budget deficit, who assume the central bank will ignore political pressure to keep interest rates artificially low.
But Trump has turned that tradition on its head. He regularly criticises the Fed and the Fed chairman he appointed, Jerome Powell, calling him an “enemy” of the US and a “bonehead” in tweets for not cutting interest rates farther and faster, asserting that the central bank is braking what would otherwise be a runaway economic boom. Previous presidents have criticised Fed chairs in private.
The president met with Powell earlier at the White House to discuss some of his frequent complaints.