The Finance 202: Judy Shelton is primed to join the Federal Reserve

Shelton has drawn unanimous opposition from Senate Democrats — and, just two months ago, enough Republicans to keep her nomination from advancing — for a number of vexing views.

She until recently advocated a return to the gold standard, arguing it would make “America’s money great again,” and backed higher interest rates, then backed off those positions in an apparent attempt to keep pace with Trump’s opinions. She has questioned the need for the Fed, and as Trump attacked it for not heeding his policy preferences, she argued for a less independent central bank.

But with the end of Trump’s presidency now looming, Senate Republicans are setting aside their reservations. Sen. Lisa Murkowski (R-Alaska), one of the last potential holdouts, said Thursday she has “had an opportunity to talk to Judy Shelton, and I’m going to be supporting her.” Meanwhile, McConnell is rejecting Democratic appeals to work on another major relief package with a dwindling lame-duck window for action this year. (More on that below.) 

If the Senate GOP also confirms Christopher Waller, a St. Louis Fed economist nominated alongside Shelton who enjoys broad support, Trump will depart having installed six of the seven members of the Fed’s board (President Obama appointed Jerome Powell to the board initially, and Trump promoted him to chair). And Lael Brainard, a frontrunner to serve as President-elect Biden’s treasury secretary, would remain the lone governor appointed by a Democrat.

“One more seat on the Fed board given to a Republican is one less seat Biden can fill,” says Stephen Myrow, managing partner of policy research firm Beacon Policy Advisors.

“This is 100 percent about the regulatory policy of the Fed,” says Raymond James policy analyst Ed Mills. “While the chair sets the agenda, for any regulatory decision, he needs a majority of the board. Leaving these two slots open for Biden to fill would get Democrats to the cusp of a majority. So I view this as a move by the banking industry to lock in some pro-deregulatory picks before Trump leaves office.”

Others are skeptical Shelton will make much of a difference on policy. Capital Alpha’s Ian Katz, while noting Shelton and Waller would make for a “redder Fed,” wrote in a Thursday note Shelton’s impact inside the building will be limited and “almost surely won’t match the attention her nomination has received.” 

“She can make speeches and give media interviews that will produce headlines and occasionally rankle Fed colleagues,” Katz wrote. “But as one vote among what would be seven Fed governors, Shelton’s influence will be limited. Even if she gains a cult following outside the Fed – something we wouldn’t rule out – it won’t move the other Fed governors.”

Shelton would be filling a vacancy on the board that runs through January 2024, rather than a full, 14-year term. So her stay at the Fed could be relatively brief if she is not renominated. And Trump’s loss all but eliminates the specter of Shelton getting a promotion to replace Fed chair Powell when his term atop the central bank expires in February 2022.

From Sen. Ron Wyden (D-Ore.), via Wall Street Journal reporter Nick Timiraos:

And here was Sen. Sherrod Brown (D-Ohio):

Just as significantly, a number of conservative opinion leaders offered their own withering criticism.

Here was Tony Fratto, an official in George W. Bush’s White House and Treasury:

And New York Times columnist Ross Douthat:

And American Enterprise Institute resident scholar Stan Veuger:

Writing for Bloomberg Opinion back in February, conservative economist Karl Smith argued that Trump has presided over a Fed that pivoted from fighting inflation to focusing on sustaining job growth — a legacy Shelton could threaten. Her “inconsistency, combined with a predilection for a hard-money policy, endangers everything that has been achieved under Powell,” Smith wrote.

National Review senior editor Ramesh Ponnuru agreed in a Thursday night post. “The Fed is already falling short of what it should be doing to stabilize the economy in the wake of this year’s contraction, and there’s a risk that confirming Shelton would tilt it further in the wrong direction,” he wrote. “Those Republican senators who believe their party needs to do more for workers ought to consider whether her confirmation — a vote could come next week — would serve that goal.”

Democrats say a refusal to accept Biden’s win is imperiling talks: “Republicans dismissed the attacks and Trump didn’t weigh in at all, with his only public comments coming through a series of Twitter posts that included false claims of electoral success,” Erica Werner reports.

“Biden joined congressional Democratic leaders and demanded a new economic relief package to address the dramatically worsening pandemic before the end of the year. Senate Majority Leader Mitch McConnell flatly rejected such a proposal, while Sen. Susan Collins (R-Maine) implored both sides to begin negotiating as the virus appeared to be sending a new shudder through the U.S. economy.”

U.S. started the fiscal year with a tide of red ink: “The U.S. federal budget deficit more than doubled in October from a year earlier, reflecting a decline in revenue and increased spending tied to the government efforts to contain the economic damage from the coronavirus,” Bloomberg News’s Vince Golle reports.

“The figures extend a rapid deterioration in the government’s fiscal position this year after lawmakers scrambled to shore up an economy that ground to a halt and depressed tax revenue because of the health crisis. In fiscal 2020, which ended last month, the U.S. amassed a record $3.1 trillion budget shortfall.”

Fears about another surge are weighing on traders: “The Dow Jones Industrial Average dropped 317.46 points, or 1.1 percent, to 29,080.17. The 30-stock average fell as much as 495 points earlier in the session. The S&P 500 slid 1.0 percent, or 35.65 points, to 3,537.01, while the Nasdaq Composite dropped 0.7 percent, or 76.84 points, to 11,709.59,” CNBC’s Fred Imbert, Jesse Pound and Yun Li report.

“The major averages turned sharply lower after Federal Reserve Chairman Jerome Powell said the U.S. economic outlook remained uncertain even after this week’s positive vaccine news.”

More on Powell’s pronouncement: “’We’re recovering, but to a different economy,’ Powell said during a virtual panel discussion at the European Central Bank’s Forum on Central Banking. The pandemic has accelerated existing trends in the economy and society, including the increasing use of technology, telework and automation, he said. This will have lasting effects on how people live and work,” CNN Business’s Anneken Tappe reports.

“While technological advances are generally positive for societies over the long term, Powell said, on a short-term basis they create disruption, and as the market adjusts to the new normal the pain isn’t shared evenly.”

709,000 seek US jobless aid: “The number of people seeking U.S. unemployment benefits fell last week to 709,000, a still-high level but the lowest figure since March and a further sign that the job market might be slowly healing,” the Associated Press’s Christopher Rugaber reports.

“The number of people who are continuing to receive traditional unemployment benefits fell to 6.8 million, the government said, from 7.2 million. That suggests that more Americans are finding jobs and no longer receiving unemployment aid. But it also indicates that many jobless people have used up their state unemployment aid — which typically expires after six months — and have transitioned to a federal extended benefits program that lasts 13 more weeks.”

• At least 10,557,000 cases have been reported; at least 242,000 have died.
• Another day, another record: “The United States again shattered records on Thursday, reporting more than 153,000 new coronavirus cases as some 66,000 people were hospitalized nationwide. The alarming increase in infections in nearly every state is primarily the result of small social gatherings that take place behind closed doors, experts say, including dinner parties, game nights, sleepovers and carpools,” Antonia Noori Farzan and Jacqueline Dupree report.

• Trump stays silent as the virus surges: “The contrast between the nation grappling with an ongoing global crisis and a president consumed with his own political problems highlighted a fundamental contradiction at the heart of Trump’s assault on the integrity of the U.S. election system: He is leveraging the power of his office in a long-shot bid to stay in the job while ignoring many of the public duties that come with it,” David Nakamura reports.
• Corey Lewandowski has covid: “He joins a growing list of individuals close to the president to have tested positive for the virus this week after attending campaign events in the lead-up to and days after the election,” CNN’s Jim Acosta, Kaitlan Collins and Maegan Vazquez report.

• Airlines warn of a rough winter: Delta Air Lines and Southwest Airlines “cautioned that the recent surge in covid-19 cases may have a negative impact on travel over the winter holidays, a period the sector had hoped would see improved bookings,” Reuters’s Tracy Rucinski and David Shepardson report.
• Disney sustains massive losses but has some good news: “The entertainment giant saw operating income drop 45 percent for the year to just $8.1 billion, and fall a whopping 82 percent for the fourth quarter to just $600 million …  It also disclosed that it counted 73 million global subscribers to Disney Plus, making the streaming service a juggernaut in its first 12 months,” Steven Zeitchik reports.
• Deutsche Bank proposes a work from home tax after the pandemic: “A research team at the bank proposed that people pay a 5 percent tax for the ‘privilege’ of working from home, if they continue to do so after the pandemic, as this could subsidize income lost by lower-earners due to the coronavirus crisis,” CNBC’s Vicky McKeever reports.
• Grocery shoppers change purchases: “Shoppers are trading canned goods and bags of dried beans for specialty chocolate and gourmet pasta,” according to new research, CNBC’s Melissa Repko reports.
• New gaming consoles arrive amid pandemic boom: “Gamers worldwide are expected to spend a record $175 billion on software alone in 2020, according to Newzoo, a gaming analytics firm, up from $146 billion a year ago. In the United States, gamers spent $33.7 billion across hardware, accessories and content through September, according to the NPD Group,” the New York Times’s Kellen Browning reports.

• European leaders warn against making plans for Christmas travel: “I know that’s tough but Christmas is six weeks away and it’s too soon for people to be booking flights to come home,” Irish Deputy Prime Minister Leo Varadkar said Thursday, according to the Irish Times.
• Boeing issues surprisingly outlook for Chinese sales: “The company just increased its industry-wide Chinese sales forecast for the next 20 years — above where that estimate stood in pre-pandemic times,” CNN Business’s Chris Isidore reports. “It’s just one example of China’s economic recovery outpacing the rest of the world.”

• Unions push competing candidates for Labor: “AFL-CIO President Richard Trumka has been advocating for Boston Mayor Marty Walsh. Michigan’s congressional delegation and some other union leaders back Rep. Andy Levin (D-Mich.). And aides to Sen. Bernie Sanders and President-elect Biden have been discussing the possibility of Sanders …,” the Wall Street Journal’s Ken Thomas and Eliza Collins report.
• Biden confronts staffing crisis at agencies: “The departures have drained away decades of expertise. Paired with a rapidly aging workforce and a new push to strip protections from the career staff, that has left some key federal agencies operating below capacity. Without a fix, it could hinder Biden’s ability to carry out his most urgent agenda items come January,” Politico’s Megan Cassella and Alice Miranda Ollstein report of the broader drain during the Trump administration.
• Ron Klain has had a long career in venture capital: “Between those stints at the White House, Biden’s chief of staff pick has worked at Steve Case’s investment fund, Revolution, which has taken stakes in companies like DraftKings and Sweetgreen,” the Times’s Lauren Hirsch and Andrew Ross Sorkin report.
• Gun sales are expected to set new records: “Gun sales spiked after Obama’s successful 2008 and 2012 campaigns. The previous record of 15.7 million guns sold in a calendar year was set in 2016, when polling suggested that Hillary Clinton would win the presidency …,” CNN Business’s Chauncey Alcorn reports.

The news comes days after Biden was projected to win the election: “Beijing’s salutations came just over 24 hours after Biden’s team said he had held phone calls with Australia, Japan and South Korea — U.S. allies that have watched with varying degrees of concern as Beijing has expanded its regional influence,” Eva Dou reports.

“The early overture to China’s neighbors reflected Biden’s campaign promise of staying tough on China, but seeking a united front instead of the Trump administration’s more unilateral approach. China’s government has been cautiously optimistic about calmer relations with Washington under a Biden administration, though officials have no illusions of a major thaw.”

Trump bans investments in firms linked to Chinese military: “Beginning Jan. 11, the order prohibits any U.S. citizens or funds from making new investments in companies deemed by the Pentagon and other federal agencies to support China’s military. They have until November 2021 to sell existing shareholdings,” Jeanne Whalen and David J. Lynch report.

“The impact of the ban is unclear. The affected companies do not appear to include China’s major publicly traded tech firms, and several of the companies said to be affected by the prohibition, including Huawei, don’t trade on stock markets. Others are large state-owned defense contractors, such as China Electronics Technology Group Corp., that don’t have foreign stockholders.”

But the DOJ found no misconduct in how the case was handled: “The Justice Department’s internal disciplinary arm concluded that then-U.S. Attorney Alexander Acosta exhibited ‘poor judgment’ but not ‘professional misconduct’ in signing off on a generous deal for Jeffrey Epstein to resolve allegations that he molested dozens of young girls years ago, drawing rebukes from victims’ lawyers and even the lead prosecutor on the case,” Matt Zapotosky and Beth Reinhard report.

“Officials released an executive summary of an investigation into the handling of Epstein’s case, now more than a decade old, and briefed victims and their lawyers on its findings. The Washington Post later obtained a copy of the full report. The summary chastised Acosta’s judgment and acknowledged that Epstein’s victims were treated poorly, but it said investigators did not find evidence that his decision to sign off on the deal ‘was based on corruption or other impermissible considerations, such as Epstein’s wealth, status, or associations.’”

Government appeals order blocking TikTok ban: “The Commerce Department’s August restrictions order was to take effect late [Thursday], barring transactions with ByteDance’s short video sharing app TikTok that its owner had warned would have effectively barred its use in the United States,” Reuters’s David Shepardson reports.

“The Commerce Department’s August restrictions order was to take effect late in the day, barring transactions with ByteDance’s short video sharing app TikTok that its owner had warned would have effectively barred its use in the United States.”

From economist Adam Tooze:

From Meghan McCain, daughter of the late Sen. John McCain (R-Ariz.): 

From the Atlanta Journal-Constitution’s Mike Luckovich: