Forget the partisans, Trump should pick Boston’s Eric Rosengren for the Fed board
President Trump is eyeing a new candidate for the Federal Reserve Board. She is Judy Shelton, a conservative economist, former Trump campaign adviser, and current director at the European Bank for Reconstruction and Development.
Shelton is being vetted for one of the two open Fed seats after conservative pundit Stephen Moore and Herman Cain, a former pizza company CEO, were forced to pull out from consideration because they couldn't win the backing of enough Republican senators for confirmation. It's not clear whether she will be nominated.
Like Moore and Cain, Shelton, 64, is a Trump loyalist and Fed critic, and holds some views — like a preference for linking the dollar to the price of gold or another peg — that are outside of the economic mainstream. She is only marginally more qualified than the two failed candidates, and Trump's interest reflects his troubling desire to pack the Fed with partisans.
Which is a shame, because there are many people out there who would be excellent stewards of the economy without the political baggage and wacky ideas. For example, Eric Rosengren, who has been running the Federal Reserve Bank of Boston since 2007.
On Tuesday, in a speech in New York, Rosengren laid out a perfectly reasonable case for the Fed's decision to hold off any move on interest rates even as Trump and others (including Shelton) press for a cut and generally badmouth the Fed's handling of the economy.
“I see no clarion call to alter current policy in the near term,” said Rosengren, who currently sits on the Fed's rate-setting Federal Open Market Committee. “I view current policy as slightly accommodative and likely to be consistent with inflation returning to the Fed’s 2 percent inflation target over time.”
That 2 percent inflation target has been impossible for the Fed to reach on a sustained basis — even with economic growth picking up to a 3.2 percent annual rate in the first quarter and unemployment at its lowest level since 1969. Rosengren acknowledged the dilemma, saying that “the two elements of the Fed’s mandate are sending opposing signals for monetary policy, with low unemployment perhaps suggesting a bit tighter policy, and low inflation the opposite.”
He also acknowledged the danger of letting inflation stay too low for too long: “Regularly undershooting could cause inflation expectations to decline, a process that has been shown to be difficult to reverse in other developed areas, including Japan and Europe.”
Still, with unemployment expected to fall even further and the economy remaining healthy, the prudent action is no action, especially amid the uncertainty surrounding trade talks with China, Rosengren said.
“For now, I am optimistically assuming that both sides in the trade negotiations will work to reach an agreement. I am also assuming that while the uncertainty is not helpful, it will be transitory, and thus have only a modest effect on the forecast for the US economy overall.”
When you talk to Rosengren, you feel confident that the grownups are in charge. No grandstanding. No nostalgia for the gold standard. No playing economic roulette for political gain.
The same holds for nearly all the regional Fed presidents.
Correction: An earlier version of this story misstated Judy Shelton’s age.