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Federal Reserve

Prospective Fed nominee Shelton says global economy in 'very dangerous situation' like 1930s

Key Points
  • Judy Shelton, who is President Donald Trump's likely nominee to the Federal Reserve board, warned Thursday about the dangers of central bank actions.
  • Rate cuts these days are being used simply to devalue currencies and hurt other countries as opposed to promoting growth, she said in a CNBC interview.
  • She compared the policies to "beggar-thy-neighbor" actions taken during the Great Depression in the 1930s and said the global economy is "in a very dangerous situation."
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Judy Shelton: The global economy is in 'a very dangerous situation'

Likely Federal Reserve nominee Judy Shelton compared the current situation involving the U.S. central bank and its global counterparts to the 1930s as the world struggled through the Great Depression.

Shelton referred to the central banks lowering rates and devaluing their respective currencies to undercut competitors. The Fed lowered its benchmark interest rate by a quarter percentage point Wednesday, and others, including the European Central Bank and Bank of Japan, have stated their intentions to loosen monetary policy as well.

Monetary policy nowadays is "not causing any growth to be stimulated but it is having an effect in currency markets, and we're in a very dangerous situation," Shelton told CNBC's Rick Santelli during a "Squawk on the Street" interview. "It's not unlike the 1930s when you had beggar-thy-neighbor competitive depreciations."

President Donald Trump has stated his intention to nominate Shelton for a Federal Reserve governor's position.

In previous writings and interviews, she had been pushing the Fed to be more aggressive with its rate cuts. Trump has wanted the Fed to loosen policy, saying that a series of rate hikes have been hampering economic growth that is nonetheless running well above what had been trend in a recovery that began in mid-2009.

Quarter-point hikes like the one the Fed approved are "not to stimulate growth."

In the 1930s, as the world was struggling through the depression, multiple countries adopted the beggar-thy-neighbor approach in an effort to boost exports and lower imports. The U.S. has taken to identifying countries publicly that it believes are manipulating currencies.

Shelton said the main target now for global central banks is the U.S. dollar, which has been rising through the year.

Asked whether she thought the U.S. should not be lowering rates just to keep up with other countries, she said "it would be nice to be virtuous in a vacuum, but I don't think we have that luxury."