Every day now, it seems there are new examples of the increasing political toxicity in Washington and a good bit of that angst concerns the Fed, even as a nominee for the Board of Governors continues to draw strong pushback. And, enduring concerns about debt levels increasingly shadow efforts to offset the impacts of the coronavirus.
This week, Bloomberg is reporting that a group of more than 100 prominent economists--including seven Nobel Prize laureates--signed a new open letter to U.S. senators urging them to reject President Donald Trump's nomination of Judy Shelton to the Federal Reserve's Board of Governors.
The new letter is nearly identical to one published in August by former Federal Reserve officials and staffers, a letter that now has 70 signatories, including four former regional Fed presidents and a former Fed governor.
Those writers argue that Shelton's views on monetary policy and economics are “so extreme and ill-considered as to be an unnecessary distraction” from the tasks facing the US central bank as it deals with fallout from the coronavirus pandemic.
The new letter's signatories include seven winners of the Nobel Memorial Prize in Economic Sciences, Bloomberg says. Shelton's nomination was voted out of committee on a party-line vote in July and she now awaits approval by the full Senate--but no vote has yet been scheduled for her or fellow nominee Christopher Waller, research director at the St. Louis Fed.
Shelton, an informal adviser to the President's 2016 campaign, has drawn significant criticism for policy views many consider well outside the mainstream--including a history of admiration for the gold standard--and for being a political loyalist who might bend to Trump's will.
Still, she appeared to abandon her advocacy for ultra-tight monetary policy when she emerged as a Fed candidate, publicly aligning herself with the President's calls for lower interest rates—and now insists that “no one will tell her what to do.”
In the meantime, The Hill reported this week that negotiations for additional virus relief continue amid reports from the nonpartisan Congressional Budget Office that emphasize an increasingly gloomy outlook for large deficits. For example, CBO says the deficit for fiscal 2020 will more than double the previous high--$1.4 trillion in 2009 during the height of the Great Recession. Overall, the debt is on track to surpass 100% of GDP next year and break its World War II record by 2023, CBO says.
Republican leaders say they aren't firmly opposed to another relief measure, but they're harshly critical of the one put forth by Speaker Nancy Pelosi, D-Calif., so the Senate leadership is working to advance a “skinny” $500 billion relief bill. A vote on that measure could come as early as next week, posing a test for what level of support Senate Republicans can muster in their own party for a bill that's less than half their initial offer.
Those efforts are separate from stalled negotiations between Pelosi and Senate Minority Leader Charles Schumer, D-N.Y., on one side and Treasury Secretary Steven Mnuchin and White House Chief of Staff Mark Meadows on the other. Meadows, in particular, has put the fiscal issue front and center. As a congressman and cofounder of the conservative Freedom Caucus, Meadows frequently railed against bipartisan spending deals because of the hit to the deficit.
Mnuchin, meanwhile, is striking a slightly more optimistic tone, saying in congressional testimony Tuesday that President Trump agreed that some level of fiscal aid was still necessary. “Let me say I very much agree with you and those other experts that more fiscal response is needed. The president and I want to move forward with more fiscal response,” he said.
While Democrats have come down from $3.4 trillion to $2.2 trillion and Republicans have come up to $1.3 trillion, they remain bitterly divided over hundreds of billions of dollars in proposed aid to state and local government.
Fiscal experts, including Federal Reserve Chairman Jerome Powell, say bold stimulus measures are needed to help the country dig its way out of the deepest economic downturn since the Great Depression, and several longtime advocates for fiscal restraint argue that even with the new CBO report, debt concerns should not stand in the way of a strong response to the pandemic.
“The warning bells this report contains should not cause a premature end to borrowing, but a commitment to dealing with the debt at the appropriate time,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
Shai Akabas, director of economic policy at the Bipartisan Policy Center, added that borrowing now could help lead to a stronger recovery and ultimately put the country in a better position to address the debt. “The strange reality is that for the nation's long-term budget picture to get better, it must get even worse in the short term,” he said.
“Doing so will give our economy the best shot to bounce back, and a good recovery now will help lessen budget shortfalls in coming years.”
So, we will see. The fight to control the virus continues to be central for most policy makers, even as the struggle to stimulate the economic recovery gains in importance—and the pre-election maneuvering on the pandemic and the economy overshadows virtually all other policy debates nationwide, fights producers should watch closely as they intensify, Washington Insider believes.
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