Thursday, December 3, 2020

Judy Shelton’s Heresy – WSJ

Judy Shelton’s Heresy - WSJ

Judy Shelton’s nomination to the Federal Reserve Board of Governors failed to move ahead in the Senate Tuesday amid two Senate GOP absences due to Covid. But Majority Leader Mitch McConnell reserved the right to vote again, and we hope the Senate does. She deserves to be confirmed—not least because of the ugly campaign against her.

Ms. Shelton was nominated in January and the Banking Committee approved her in July. But Republicans Mitt Romney, Susan Collins and Lamar Alexander oppose her, though the reasons fail on inspection.

Ms. Shelton holds advanced degrees in economic fields—Fed Chairman Jerome Powell is a lawyer—and has participated in monetary-policy debates since the 1980s. The objection is to her opinions. Those have been branded unconventional, though the Fed lately has adopted some and proven how right she is in others. Her GOP critics think she’s not independent enough from President Trump, though that is irrelevant after the election. They also accuse her of flip-flopping to oppose low interest rates during Barack Obama’s term and then support low rates once Mr. Trump was in office.

But the Fed flipped too. As asset prices soared and the economy recovered after the financial crisis, she said the Fed should normalize policy and raise rates. Instead the Fed waited until late 2015, when unemployment was falling without sparking renewed inflation. Now she observes that if there is no evidence inflation is taking hold, the Fed should not view historically low unemployment as a reason to raise rates prematurely.

Which is precisely what the Fed has done in the strategic review it unveiled this summer. The Fed is abandoning in all but name the discredited Phillips Curve that posited low unemployment would trigger inflation. Instead policy makers will wait to see inflation rising for some time before raising rates.

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