Fed officials are asking themselves a lot of tough questions ahead of the July FOMC meeting, which is widely expected to produce a 25bp insurance cut, designed to preempt any spill over to the US from the global manufacturing slump and counteract some of the uncertainty emanating from simmering trade tensions.
One thing nobody is asking, though, is “What would Judy Shelton do?”
Shelton has made all manner of headlines recently, after Donald Trump announced his intent to nominate her for the Fed along with Jim Bullard’s head of research, Chris Waller.
While Waller is a conventional choice, Shelton is only slightly less cartoonish than Stephen Moore, whose nomination crashed and burned in spectacular fashion earlier this year, much to Trump’s chagrin.
Shelton is currently executive director for the European Bank for Reconstruction and Development, which means her confirmation process should go smoothly. But since being tipped as a Fed nominee, she’s made no secret of her unorthodox views on everything from the dual mandate to the desirability of a new gold standard wherein nations would peg their currencies to a reference point, which she imagines might be a convertible gold-backed bond.
Read more: She’s No Stephen Moore, But Judy Shelton Will Work, Trump Reckons
Despite advocating for a return to a quasi-gold standard and despite repeatedly suggesting that the Fed shouldn’t exist at all, Shelton has nevertheless argued for rate cuts in a laughably transparent attempt to pander to Trump. In other words, Shelton is just like Moore: Perfectly willing to harbor diametrically opposed viewpoints if that’s what it takes to win Trump’s approval.
Well, in case anyone was wondering what Shelton thinks the Fed should do at the July meeting, she would cut rates by 50bp and, like Neel Kashkari, she would have preferred the Fed pull the trigger weeks ago.
“I would have voted for a 50-basis-point cut at the June meeting”, Shelton told the Washington Post, in an email.
She also suggested that weak activity globally and easing by other central banks helps make the case for aggressive rate cuts from the Fed. “I do think global conditions and the clear monetary paths being signaled by other central banks are a factor in considering how much our own Federal Reserve might choose to lower on July 31”, she said, shamelessly parroting Trump’s Monday morning tweets.
As WaPo rather dryly notes, “Shelton… was highly critical of the Fed’s move to slash interest rates in the United States to near zero in the aftermath of the financial crisis”.
But that was then, and this is now. Now, Judy has a chance to be a somebody, and when you wanna be a somebody, it means you have to sell your soul to a higher power, in this case, Donald Trump, who is no stranger to flip-flopping. After all, then-candidate Trump famously lambasted Janet Yellen for “doing political things” in 2016, when he also called the stock market “a big fat ugly bubble” built on artificially suppressed interest rates.
Fast forward three years, and that same Donald Trump is determined to politicize the Fed and inflate an even bigger equity bubble with rate cuts and, if he has his way, a restart to large-scale asset purchases.
Earlier this month, during a truly farcical interview with CNBC’s Rick Santelli, Shelton lamented the role of central banks in the post-crisis era. “Central banks have engineered us into a negative rate scenario which completely undermines the idea of having faith in the future which is the very virtue of capitalism”, she chided, while Santelli “earned” his egregious salary by pretending to be indignant about the injustice of it all.
In an apparent attempt to square this circle and reconcile the wholly inconsistent narratives she’s simultaneously pushing, Shelton told WaPo on Monday that “even a 50-basis-point reduction would still keep the Fed funds rate well above zero”.
Nothing further.
