What Judy Shelton's Addition to the Fed Would Mean for Markets

President Donald Trump may be about to leave his imprint on the Federal Reserve in the waning days of his term. The full Senate is now expected to vote on the nomination of Judy Shelton to the central bank's Board of Governors as early as next week.

Senate Majority Leader Mitch McConnell (R., Ky.) Thursday took procedural steps to bring Shelton's final vote in coming days. Her nomination gained the support of Sen. Lisa Murkowski (R., Alaska), giving Shelton enough votes to gain approval. Only two Senate Republicans had voiced opposition to her nomination, Mitt Romney of Utah and Susan Collins of Maine. While Democrats are expected to oppose Shelton, the GOP still would be expected to have 51 votes even without those dissenters.

Shelton would bring a view of monetary policy that is both radically apart from the mainstream and has shifted along with the party that occupies the White House.

In previous writings, Shelton has advocated for a return to the gold standard, the last vestiges of which were shed by the U.S. nearly a half-century ago. She also has argued against federal deposit insurance, which was instituted during the New Deal to prevent bank runs and failures like those suffered during the Great Depression.

Beyond these reactionary views, Shelton, who was an advisor to Trump's 2016 presidential campaign, criticized the Fed's expansionary policies during the Obama administration of keeping interest rates low and expanding its balance sheet through the purchases of Treasury and agency mortgage-backed securities. But she later reversed course and echoed the Trump administration's criticism that the Fed was insufficiently accommodative.

Nevertheless, with just a single vote on the seven-member Fed Board of Governors and the 12-member Federal Open Market Committee (when all vacancies are filled), her impact on policy would likely be limited to casting lonely dissents.

Given her ties to Trump, Shelton was bruited as a possible successor to Jerome Powell when his four-year term as Fed chair ends in February 2022, which would raise serious concerns about the central bank's independence. But there is zero chance of President-elect Joe Biden nominating Shelton as Fed chair.

Indeed, he may want to name his own central bank head, although there are precedents for Democrat presidents to rename Fed chiefs originally named by their GOP predecessors. Bill Clinton repeatedly renominated Alan Greenspan, while Barack Obama renamed Ben Bernanke in 2009.

Also awaiting full Senate approval is the far less controversial nomination to the Fed Board of Charles J. Waller, the highly regarded head of research at the St. Louis Fed, which has had a reputation over the years of being among the most independent of the 12 Fed district banks in its policy views. James Bullard, the St. Louis Fed president, dissented in 2019 in favor of more aggressive interest-rate cuts and against a rate increase in 2017 as a voting member of the FOMC. Waller's research was thought to be behind Bullard's views favoring more accommodative policies.

These nominations will leave the imprint of the outgoing Trump administration on the Fed, as it did with the naming of Amy Coney Barrett as a Supreme Court Justice. But in the case of monetary policy, the impact will be relatively limited.