Fed Nominees Would Bring New View of Inflation

President Donald Trump’s latest picks to serve on the Federal Reserve Board will challenge the long-standing notion that there is a trade-off between low unemployment and higher inflation, according to his chief economic adviser.

Trump last week said he intends to nominate Judy Shelton and St. Louis Fed research director Christopher Waller to serve on the Fed’s Board of Governors. Shelton’s previous views on the gold standard and her doubts about the central bank’s mandates from Congress to pursue stable prices and maximum employment have raised concerns among economists. She called the mandate “nebulous objectives” in an interview with Bloomberg in May.

“We are challenging the Phillips Curve status quo,” Lawrence Kudlow, National Economic Council director, told reporters Tuesday. “You betcha. I mean, I spent my whole career on that, and the president agrees with this, of course he agrees with this, so Judy’s going to be a leader on that and so will Waller.”

Trump announced on Twitter last week that he was advancing Shelton and Waller as his picks for the two open seats on the Fed board. Kudlow said both candidates met with the president for about 45 minutes. “It was kind of cool,” he said. “This president is very engaged on monetary policy. He knows a lot.”

After the president made his decision on the two nominees, Kudlow said he called Mike Crapo, the Republican senator from Idaho who leads the Senate Banking Committee, which confirms Fed nominees.

Kudlow weighed in on the Fed’s mandate in an earlier interview at a CNBC event in Washington, saying: “Price level stability and a steady dollar is what the Fed should aim for, not employment.”

He also said that Fed Chairman Jerome Powell’s job is safe for now. “There is no effort to remove him. I will say that unequivocally at the present time,” he said. “There are no plans presently to change Powell’s job.”

Trump has repeatedly blasted Powell over the Fed’s interest rate increases last year and complained about the strength of the dollar. He’s said he has the authority to replace Powell as Fed chairman but doesn’t plan to do it.

White House aide Kellyanne Conway echoed the point Tuesday, saying: “He has the power to fire Jay Powell, but he hasn’t done that; he’s not doing that.” Powell has said he intends to serve his full four-year term and that “the law is clear” on that issue.

Trump’s eagerness to get rid of Powell makes Shelton and Waller potential chairs-in-waiting, if confirmed by the Senate for seats on the board. The lengthy Senate confirmation process means neither candidate is likely to join the board for months.

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