Fed: The Shelton, Waller Confirmation Vote

Published on July 20, 2020
SGH Insight
The Senate Banking Committee will almost certainly vote tomorrow along a 13-12 party line to recommend that President Trump’s nominations of Judy Shelton and Chris Waller go forward to the Senate floor for confirmation to serve on the Federal Reserve Board of Governors.

** If both are confirmed in a Senate floor vote that now seems likely, both Waller, currently the head of research at the Federal Reserve Bank of St. Louis, and Shelton, a more controversial economic advisor to President Trump who served as the US representative to the European Bank for Reconstruction and Development, will begin their terms on the Fed’s Board of Governors later this summer, with their first meeting as voting Governors of the Federal Open Market Committee coming in September.
Market Validation
(Bloomberg 7/21/20)

Policy Validation

Judy Shelton, President Donald Trump’s contentious pick for the Federal Reserve’s Board of Governors, cleared a key hurdle to confirmation by winning the approval of a majority on the Senate Banking Committee.
She was backed in a party-line vote Tuesday, 13-12. The committee also voted in favor of Fed nominee Christopher Waller, currently director of research at the St. Louis Fed. His nomination passed 18-7.

The Senate Banking Committee will almost certainly vote tomorrow along a 13-12 party line to recommend that President Trump’s nominations of Judy Shelton and Chris Waller go forward to the Senate floor for confirmation to serve on the Federal Reserve Board of Governors.

** If both are confirmed in a Senate floor vote that now seems likely, both Waller, currently the head of research at the Federal Reserve Bank of St. Louis, and Shelton, a more controversial economic advisor to President Trump who served as the US representative to the European Bank for Reconstruction and Development, will begin their terms on the Fed’s Board of Governors later this summer, with their first meeting as voting Governors of the Federal Open Market Committee coming in September. 

** The agenda for the FOMC September meeting is likely to be a crowded one, with major policy issues to be debated and voted on, including whether to extend or revise, in coordination with the US Treasury, the 13-3 credit facilities beyond their September 30 end date. The FOMC is also widely expected to be unveiling the Fed’s new policy framework review at the September meeting, and to be presenting their quarterly Summary of Economic Projections, along with the rate dot plots, which will include a first peek into the 2023 projections.

Scheduling the Senate Floor Vote

That Banking Committee Chair Mike Crapo scheduled the mark-up of the nominations for tomorrow, after several months of delays, strongly indicates that both he and Senate Majority Leader Mitch McConnell are confident they have secured the necessary Republican votes to ensure swift progress for the two nominees from the Committee vote through the procedural vote and the final floor vote by simple majority.

The floor vote could, in theory, come as soon as the end of this week, even though up to 30 hours of debate is allowed before both the cloture and actual confirmation votes. The Senate leadership may be scrambling, to some extent, to clear the deck before it dives deep into the negotiations over the high profile fiscal package being debated with Senate and House Democrats.

Although there is an FOMC meeting next week, the two nominees will still need to undergo the Fed’s own internal review on ethics and divestment issues. That review process will take several weeks, thus making the September meeting the first that will be attended by Waller and Shelton.

We understand there are up to six or more Senate Republicans who are uneasy with Shelton’s lack of qualifications or her lack of political independence, and one tactical maneuver on tough floor votes could be to vote against a nominee on the procedural vote in order to avoid voting no on a more visible confirmation vote. Majority Leader McConnell can afford to lose three Republican votes and still win confirmation for the two presidential nominees, with Vice President Mike Pence casting the deciding simply majority vote.

To help bolster the odds for confirmation of Shelton, the more controversial nominee, we understand the two votes will be paired in the Senate floor vote, making it nearly impossible  to vote for one nominee without the other. To do so, a Senator would have to press for an amendment to split the votes up, which would be time consuming and difficult to pull off in the best of times, but especially now when the priorities of the Senators lie elsewhere.

Among the handful of Senate moderate Republicans wary of Shelton, for instance, they are said to be “not picking fights” with the White House outside a focus on the massive spending bill negotiations, in particular, in pressing Majority Leader McConnell to resist White House pressure to phase out federal CDC funding for coronavirus testing.

And most of the Republican Senate still see the coming Fed Board confirmation vote as “one thing,” to fill the two vacancies on the Fed’s Board of Governors and not as a vote on who might be the next Fed chair, which would trigger greater opposition. 

Powell’s Term as Chair Expires in 2022

Chairman Jerome Powell’s term as chair expires on February 5,  2022 and as governor in 2028. Vice President Richard Clarida’s position as Vice Chairman ends on January 31, 2022, less than a week before Powell’s term as Chair ends. So whoever wins the presidential election this November will be in the position to nominate a new Chair and Vice Chair if desired, barely one year into a new term.

One twist on that front is that the President nominates and the Senate confirms a nominee as chair of the Board of Governors, not the monetary policy making FOMC; it is the FOMC members who vote on their chairman. So in theory, if a President Trump or Biden chose not to reappoint Powell as Chair of the Board, if Powell declined to leave his Governor’s seat – a pretty stormy political scenario to say the least —  the Committee could still turn around and vote him right back in as their FOMC chair.

And if both of the remaining two vacant seats on the Board are filled, it also means unless one of the seven sitting governors steps down, there will be no opportunity by whoever is President after November to name an outside nominee to the board or as Chair until the early 2022 end of terms for Vice Chair Clarida and Chair Powell.

If confirmed as expected, Shelton would be assuming the “short” seat of the two current vacancies, serving until 2024, taking the seat vacated by former Chair Janet Yellen. Waller’s seat, on confirmation, would extend to 2030.

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