Shelton and Waller Fed nominations go to full Senate

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By the narrowest of margins, the U.S. Senate Committee on Banking, Housing and Urban Affairs approved the controversial nomination of Judy Shelton to the Federal Reserve board and gave Christopher Waller a larger margin.

The nominations now go to the full Senate in the coming weeks. The vote on Shelton, a former U.S. executive director at the European Bank for Reconstruction and Development, was 13-12, while Waller, executive vice president and director of research at the Federal Reserve Bank of St. Louis, got support from 18 panel members, while 7 voted against him.

Judy Shelton (left) was approved by a slim margin of `13-12, while Waller had more support.

Before the vote, panel chair Mike Crapo, R-Idaho, said he was satisfied with Shelton's answers when she appeared before the panel.

Ranking member Sherrod Brown, D-Ohio, stated his opposition to both candidates, saying Shelton "flip-flopped" on her positions and called her a "a threat to our economy, our democracy, and our country" and a "fringe candidate." As for Waller, Brown said, if confirmed, "I am concerned he'll not do his job of holding the biggest banks accountable."

"Judy Shelton is a controversial choice due to her prior unorthodox views and political connections to the Trump administration," said Kathy Bostjancic, Chief U.S. Financial Economist at Oxford Economics. "They will likely be confirmed by a full Senate vote in the coming weeks, though given Shelton’s unconventional views her final confirmation is not a sure thing."

If confirmed, both should participate in the September meeting, she added, noting, they "are likely to support the current extremely accommodative policy stance."

With President Trump often berating Fed Chair Jerome Powell, although that has changed recently, many speculated that if Shelton joined the Board and Trump gets re-elected, he would choose her to chair the panel.

Shelton now "seems to be a lot closer to becoming the next Fed chair," said Ed Moya, senior market analyst at OANDA. "Shelton was an inflation hawk, who once supported the idea of the U.S. returning to the gold standard. Now the ball is in Senate Majority [Leader Mitch] McConnell’s court, he can call for a vote before the August break if he thinks he has the votes to get her approved."

"Wall Street would not be surprised if President Trump is victorious in November, that he will make Shelton the next Fed chair once Powell’s term ends in 2022," Moya said. "If Shelton gets approval, negative rate expectations will likely grow."

Philly Fed non-manufacturing index
Non-manufacturing activity at the firm-level moved higher in the Philadelphia region for the third month in a row to 23.7 in July from 7.3 in June, according to the Federal Reserve Bank of Philadelphia's Business Outlook Survey, released Tuesday.

The regional activity index rebounded to positive 0.7 from negative 3.6 the month before.

The new orders index showed expansion for the first time since February, reversing to positive 13.8 from negative 12.6. The sales or revenues rose to 11.1 from 0.3, while prices paid climbed to 9.9 from 2.0.

Unfilled orders climbed to positive 5.5 from negative 12.3, while inventories slipped to negative 4.6 from negative 3.4.

Prices paid increased to 9.9 from 2.0 and prices received dipped to negative 13.8 from negative 13.7.

The number of full time employees narrowed to negative 8.1 from negative 13.3, while the number of part-time employees improved to negative 20.7 from negative 24.4.

The six months from now indexes show respondents expect the sector to improve during that time, although the general business activity index for the region dropped to 23.9 from 37.1, while at the firm level, the index slipped to 39.1 from 40.5.

CFNAI
The Federal Reserve Bank of Chicago's National Activity Index rose to 4.11 in June from 3.50 in May

Production- and employment-related indicators posted the biggest gains, with personal consumption and housing also making a positive contribution in the month, while the last broad category — sales, orders and inventories — made a negative contribution.

The index’s three-month moving average, CFNAI-MA3, narrowed to negative 3.49 in June from negative 6.36 in May.

The diffusion index rose to zero from negative 0.45 in May

CFNAI-MA3 readings below negative 0.70, with a diffusion index below negative 0.35, suggest economic contraction.

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