Judy Shelton, a nominee of President Trump’s for the Federal Reserve Board, has come under fire for two main reasons. First, she has been a single-minded advocate of a policy that most economists rightly reject: the revival of the gold standard. Second, she has appeared to change her monetary views radically in recent months to conform to what President Trump wants. These criticisms do not seem to me inconsistent: They raise the possibility that she is someone who is unlikely to exercise the steady and independent judgment that one would like to see from a central bank. They are, however, criticisms that can be defeated if she has a solid explanation for how her views have changed.
The defense of her in today’s Wall Street Journal does not supply that explanation. The editors are too busy piling scorn on her critics: They’re not “honest,” they’re not “coherent,” they’re “caterwauling,” they’re “monetary mandarins.”
The editors write, “Ms. Shelton isn’t going to return the Fed to the 19th-century gold standard. Her interest in gold is part of the eternal monetary debate over which prices to follow in setting monetary policy, or whether to have a ‘price rule’ at all.” As one vote on the Fed, Shelton wouldn’t have the power to return to the gold standard. But the Journal is obscuring the fact that she has, at least in the past, said she wants to do exactly that. Note, for example, the first sentence of this 2009 op-ed by Shelton in, er, the Wall Street Journal: “Let’s go back to the gold standard.” You can’t fault her for not being forthright. Or, at least, you couldn’t back then.
The Journal continues: “Unlike many monetary mandarins, she also believes that monetary policies that ignore exchange-rate stability wreak political and economic havoc.” If Shelton had merely argued in the past that central banks should try to contain exchange-rate volatility, other monetary-policy thinkers would disagree with her but her nomination would not have raised anything like the controversy it has. The criticisms of her have not focused on this aspect of her thought. The paragraphs the Journal spends on it are interesting but a diversion from, rather than an answer to, those criticisms.
Back to the issue of inconsistency. Why was Shelton calling for higher interest rates during the early years of the recovery, when unemployment was higher and inflation low, while calling for lower interest rates now, as Trump wants? The Journal notes the question and then says that central bankers have been confused about what to do in recent years and that Fed chairman Jay Powell has made mistakes — which is not an answer to the question. Nor is it an answer to others that Shelton’s record inspires. Why was anything above 0 percent inflation immoral back then, but no obstacle to looser money today? If it’s crucial to keep gold prices stable, then why aren’t the rising gold prices of the last year and a half telling us to tighten money?
Shelton’s current view, according to the Journal, is that “if historically low unemployment and strong economic growth are not triggering rampant inflation, then perhaps the Fed should butt out for now” and refrain from raising interest rates. That’s a defensible view. But it’s not Shelton’s view: She has said she wants to cut rates, not just refrain from raising them. And if the absence of inflation is a good reason to refrain from raising interest rates now, it was an even better reason in the early years of the recovery — when low inflation coincided with very high unemployment.
The editors wrap up this discussion by saying, “None of this is inconsistent with Ms. Shelton’s long-argued views.” Well, okay then! The Journal commends Shelton because she would bring “intellectual diversity” to the Fed. That is even truer than the Journal allows: She has held diverse views herself. Perhaps in her confirmation hearings she will do a better job than her supporters have of defending them.