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Editorial: Trump’s choice of a ‘gold bug’ would imperil the Federal Reserve

Judy Shelton, former U.S. executive director for the European Bank for Reconstruction and Development.
Judy Shelton, former U.S. executive director for the European Bank for Reconstruction and Development, in 2019.
(Andrew Harrer / Bloomberg)

Prizing loyalty over qualifications, President Trump has nominated several economists with oddball or inconsistent views of monetary policy for seats on the Federal Reserve Board of Governors, along with several with solid credentials. The Senate has ably sorted the wheat from the chaff so far, but that may change soon — and it couldn’t come at a worse time.

Last week the Senate Banking Committee voted to endorse Trump’s two most recent nominees, sending them to the full Senate for a final vote. One mainstream choice drew bipartisan support from committee members: Christopher J. Waller, director of research at the St. Louis Federal Reserve Bank. The other, quirky pick advanced only with Republican votes: economist Judy Shelton, whose main qualification appears to be the work she did in 2016 for Trump’s campaign.

By law, the Fed has two missions: keeping inflation in check and pushing for full employment. In practice, the Fed board has played a key role in helping the U.S. economy recover from recession, holding down interest rates and making it easier for struggling businesses to obtain loans. The central bank’s efforts have been especially important in the last two decades, as the deep ideological divide among lawmakers has prevented Congress from responding as aggressively as it should to downturns. And after the 2008-2009 recession, the Fed was given new powers for regulating and supervising systemically important financial institutions.

Shelton, however, wants to turn back the clock to the days when the Fed didn’t intervene quickly and creatively to help the economy. She is best known for advocating a rules-based system of monetary policy, where each nation’s currency has a fixed and predictable value. And in particular, she likes the gold standard, which the United States embraced from its founding until the Fed finally abandoned it in 1973. The rigid gold standard is the antithesis of modern monetary policy, which seeks to increase the supply of money when credit is dangerously tight and decrease it when inflation is eating away the dollar’s value.

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Economists roundly reject the idea of returning to the gold standard. It makes no sense — and ignores the lessons of history — to abandon the central bank’s ability to react to crises in the banking system and the wider economy.

Shelton’s main arguments boil down to nostalgia for a bygone era when countries weren’t so interconnected, trade volumes were lower and savings accounts paid more than negligible interest rates. Returning to the gold standard or other hamstrung monetary policy won’t bring those days back.

Nor is it a good idea to tie the Fed more closely to Congress and the White House, as Shelton favors. Trump may want a Fed board that responds to his needs, but the rest of us need a central bank that tunes out the political noise and focuses on its mission.


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