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GOP Traditionalists Thwart Trump's Push to Install Loyalists at the Fed -- Analysis

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05/03/2019 | 05:45am EDT

By Nick Timiraos

At first blush, the decision by a second Trump-selected candidate for the Federal Reserve Board to withdraw in as many weeks marks a win for the central bank's defenders, who had warned that former campaign adviser Stephen Moore and former Republican presidential candidate Herman Cain were too partisan for the technocratic Fed.

The episode shows "Republicans still wish to see the Fed as a place where serious work is done by credible Republicans," said Peter Conti-Brown, a financial historian and legal scholar at the University of Pennsylvania.

Still, the drama doesn't necessarily indicate the Fed will remain entirely insulated from more partisan pressure.

While some Senate Republicans cited partisanship as among the reasons for resisting the two candidates, others based their reservations on their controversial personal conduct or writings.

Mr. Cain, for example, abandoned a presidential campaign in 2011 after allegations by several women of sexual harassment surfaced. He denied the charges, but his confirmation hearing was likely to make for an uncomfortable re-airing of those allegations.

Mr. Moore, on the other hand, carried baggage in the form of an unpaid tax lien and reports that he had been held in contempt of court for failing to satisfy a divorce settlement in 2012. More recently, his impolitic writings about women, in which he complained about them making more money than men, made several senators balk because their support for his candidacy might later be used by their opponents as fodder in any reelection contests.

Mr. Moore said last month that the divorce had been settled amicably. He disputed the IRS's calculation of the tax debt but said he had paid it, and court records show the case is closed.

"What seems to have sunk Cain and Moore were their obvious misogynistic histories." said Mark Spindel, a Washington-based investment manager who co-wrote a history of the Fed. "Their crank/hawkish monetary policy recommendations were just gravy."

The upshot is that it could be premature to conclude Senate Republicans would torpedo future efforts to install more overtly partisan nominees, provided they don't have some of the same personal baggage as the recent picks.

Mr. Trump could continue to struggle to fill the two Fed board vacancies because many Republicans and conservatives for years called for monetary policy that would provide less support to the economy.

As a result, it could be tricky for the White House to find a policy specialist who is both well-regarded among conservatives and who would favor, without the appearance of political expedience, the kind of aggressive stimulus Mr. Trump has recently advocated in the form of lower interest rates and more central bank bond-buying programs.

For example, some allies of former Trump campaign adviser Judy Shelton are pushing the president to nominate her for a post. Ms. Shelton was confirmed by the Senate last year to serve as a U.S. director at the London-based European Bank for Reconstruction and Development. She has been critical of Fed policy over the last decade for being too accommodative and has called for returning to a gold standard, where interest rates would have to be adjusted to keep the dollar's value fixed against gold.

Ms. Shelton worked closely on the 2016 Trump campaign with Lawrence Kudlow, who is now White House National Economic Council director, and served on Mr. Trump's postelection transition team at the Treasury Department. On Thursday, she said she wasn't able to discuss any potential Fed appointment.

The unraveling of Messrs. Cain's and Moore's candidacies was likely to be greeted with relief at the central bank, according to former Fed officials, because the institution prides itself on a nonpartisan culture. Mr. Moore has signaled he was eager to accept the Fed job to ensure Mr. Trump would face favorable economic conditions for his reelection next year.

Nominating both men would have offered Mr. Trump the loyal advocates he has sought in positions across the government. He announced his desire to nominate both men in recent weeks after growing increasingly frustrated with his selection of Fed Chairman Jerome Powell in November 2017.

Mr. Trump's preference for loyalists is a signal that if he wins reelection next year, he would replace Mr. Powell when his term expires in February 2022 with someone less committed to the Fed's independence, said former Dallas Fed President Richard Fisher in an interview last month. "That is something people should be watching and concerned about, " he said.

The whole saga underscores more broadly Mr. Trump's exasperation with his initial four picks to fill posts on the Fed's seven-seat board, particularly Mr. Powell. The Fed's 10-member rate-setting committee voted unanimously Wednesday to hold their benchmark interest rate steady in a range between 2.25% and 2.5%. On Tuesday, Mr. Trump called for the central bank to cut rates by 1 percentage point.

Write to Nick Timiraos at nick.timiraos@wsj.com

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