(Kitco News) – The gold market could have at least one new ally within the Federal Reserve after U.S. President Donald Trump nominated Judy Shelton to be a board of governor of the U.S. Central bank.
Shelton has previously advocated for the U.S. to return to a gold standard to create a “reliable store of value across borders and through time.”
“It’s entirely reasonable to ask whether this might be better assured by linking the supply of money and credit to gold or some other reference point as opposed to relying on the judgment of a dozen or so monetary officials meeting eight times a year to set interest rates,” she said in commentary published in the Wall Street Journal April 21.
Not only does Shelton see a role for gold in today’s monetary system, but she also is a significant dove, recently saying in an interview with the Wall Street Journal that the central bank should lower interest rates as soon as possible.
“When you have an economy primed to grow because of reduced taxes, less regulation, dynamic energy and trade reforms, you want to ensure maximum access to capital,” she said in the interview. “The Fed’s practice of paying banks to keep money parked at the Fed in deposit accounts instead of going into the economy is unhealthy and distorting; the rate should come down quickly as the practice is phased out.”
She has advocated for interest rates to fall to 0% within one or two years.
However, Shelton has not always supported looser monetary policy. After the 2008 financial crisis and great recession, she argued that quantitative easing was a mistake.
Shelton is currently the executive director of the European Bank of Reconstruction & Development.
Trump’s second nominee is Christopher Waller, who is currently the vice president and director of research at the St. Louis Federal Reserve.
According to some market analysts, President Donald Trump’s nominees should have no problem being confirmed by the Senate. Shelton received senate approval for her current position.
“Both are economists and have strong views on monetary policy,” said analysts at TD Securities.
However, TDS analysts said that the two nominees will not have much impact on current monetary policy as interest rate are expected to be cut at the end of the month.
“Even without these new nominees, we expect the Fed to begin to ease rates in July and cut a total of 150bp over the next year (the market is pricing in just 100bp). We expect pricing for 2020 cuts to increase if these nominees are confirmed,” the analysts said.
Gold prices have risen significantly higher in the last few months as markets have aggressively priced in looser Federal Reserve monetary policy through the rest of the year. August gold futures last traded at $1,420.40 an ounce, up nearly 1% on the day.
Expectations of up to four rate hikes this year has pushed U.S. 10-year bond yields below 2% for the first time in more than two years.
Lower bond yields are positive for the gold market, as it improves the metal’s holding costs as a non-yielding asset.
By Neils Christensen
For Kitco News
Contact nchristensen@kitco.com
www.kitco.com
