3. Judy Shelton vs. Fed independence
Donald Trump hasn't given up on his dream of politicizing the Fed, Axios' Felix Salmon writes. After failing to get Herman Cain and Stephen Moore onto the Fed's board of governors, his latest candidate is one of his former campaign advisers, Judy Shelton. She's testifying in front of the Senate banking committee today.
Why it matters: Shelton is no more qualified to sit on the Fed board than Cain or Moore were. But she's already further along in the process than either of them ever managed. Her nomination is now being treated as a loyalty test for Senate Republicans, few of whom have any desire to provoke Trump's anger.
Context: The Supreme Court and much of the federal judiciary have been highly politicized for decades, even as the Department of Justice is currently at the center of a politicization firestorm. The Federal Reserve, for all that it has been on the receiving end of many irate Trump tweets, is the most important institution that has managed — so far — to stay above the political fray.
For the record: As Catherine Rampell has comprehensively documented for the Washington Post, Shelton's views on monetary policy are nakedly partisan.
What they're saying: Sen. Mike Rounds (R-South Dakota) told Fed chair Jay Powell this week that "on both sides of the aisle you’ll find strong support for an independent Fed." He then turned around and told the WSJ's Nick Timiaros that he would support Shelton's nomination, on the grounds that it's good to have a diversity of opinions on the Fed board.
- If Shelton is confirmed, and if Trump is re-elected, she would immediately become the front-runner to be the next Fed chair. (There's no way that Trump will re-nominate Powell.)
The bottom line: Diane Swonk, chief economist at Grant Thornton, says of the prospect of Shelton joining the Fed board: "It’s mind-boggling. It’s disturbing. It’s dangerous." It's also entirely possible. The only thing that can prevent it now is a show of spine from at least four Republican senators.