The Assay

On November 11, 2025, economist Judy Shelton appeared on CNBC to discuss the Federal Reserve's rate path. Her name has circulated for senior roles in the incoming administration, and the views she expressed are not academic — they are audition notes for policy. She spoke fluently about the harm of high interest rates to small business, about the Fed's reliance on models that ignore supply-side dynamics, about the need for honest money and honest government. She invoked Paul Volcker. She proposed a gold-backed Treasury bond. She called for rate cuts. To anyone not holding the documentary record, the argument sounded coherent, even overdue.

These are testable claims. The FOMC Insight Engine contains 194,000 searchable passages spanning 1936 to 2025. We tested each of Shelton's claims against this documentary record. What we found was a pattern more instructive than simple error: legitimate diagnoses paired with prescriptions the institution has already tried, tested, and rejected on operational grounds.

The Borrowed Authority

Every argument in Shelton's interview depends on one rhetorical move: the claim that Paul Volcker understood fiscal discipline — not monetary restraint — as the deeper solution to inflation. She tells the audience that Volcker "believed that the real problem was the lack of a balanced budget" and that he "really came on strong and told Congress about that." The implication structures everything that follows: if Volcker himself saw monetary tightening as secondary to fiscal correction, then Shelton's prescription — ease rates, trust supply-side expansion — inherits his authority.

The FOMC transcripts do not permit this reading.

In a 1981 public statement, Volcker declared his position in language that leaves no room for the interpretation Shelton requires:

Indispensable. The word means it cannot be dispensed with. It is not optional. It is not secondary to anything. And this was not merely public performance. In a December 1984 FOMC meeting — behind closed doors, speaking to colleagues who needed no persuasion — Volcker clarified the hierarchy:

He then specified: primary "relative to anything else." Not relative to fiscal policy alone — relative to every other instrument of economic management. The transcripts across this entire period show a Chairman who waged a two-front war: monetary discipline and fiscal consolidation fighting simultaneously. Shelton collapses this conjunction into a substitution. She takes Volcker's concern about deficits — which is real, which the transcripts amply document — and discards his conclusion about what that concern required of monetary policy.

The documentary record reveals what actually happened when fiscal policy went the wrong direction. Staff projected deficits of $60–75 billion for 1981–82. The actual number hit $200 billion by 1983 — nearly triple the forecast. Governor Nancy Teeters warned in March 1982 of a "collision course" between restrictive monetary policy and stimulative fiscal policy. She predicted the deficit would prevent the Fed from easing rates. She was right. Volcker did not ease. He could not. The Fed held tighter for longer precisely because fiscal expansion was pouring fuel on the fire — the exact inverse of Shelton's logic.

This is the retrospective verdict of the Volcker era — the opposite of what Shelton implies. The man she invokes as authority is, in his own words, in private deliberation, across multiple years, the strongest possible witness against her position. If the borrowed authority does not hold, nothing built on it can stand. And the next claim requires it to stand, because Shelton's structural argument depends on the premise that the Fed is constitutionally incapable of the kind of thinking Volcker practiced.

The Capacity Already Demonstrated

Having invoked Volcker to establish that monetary easing is safe when fiscal policy is expansionary, Shelton makes her structural charge: "The Fed's approach with these Keynesian models ignores the impact of lower taxes and less regulation, which increases supply." This is a claim of institutional blindness — that the Federal Reserve is trapped in a Phillips Curve framework that can see only demand, never supply.

The FOMC transcripts from 1996 through 2000 make this claim impossible to sustain. They reveal an institution that did exactly what Shelton says it cannot do — and did it as the Chairman's personal project.

This is the Chairman of the Federal Reserve calling the Phillips Curve framework obsolete from inside the institution. Not a heterodox critic. Not an outside nominee. The person running the system. Michael Prell, Director of Research, made the supply-side channel explicit in September 1997, identifying "gains in competition and efficiency through domestic deregulation and restructuring" alongside technological innovation as drivers of productivity. The Fed was tracking deregulation by name, in staff briefings, as a contributor to supply expansion.

On May 20, 1997, the FOMC took the step that should end Shelton's argument on this point. The Committee discussed conducting what they called an "experiment" — allowing the unemployment rate to fall below the estimated NAIRU to test whether productivity-driven supply expansion had raised the economy's non-inflationary speed limit. They held rates lower than every traditional model prescribed. By March 1999, Prell confirmed that the staff had been "emboldened to move apart from most of the pack and raise our estimates of productivity trend." The experiment worked. Unemployment fell to 4 percent without an inflation surge. Labor productivity jumped from 1.4 percent to 2.8 percent.

The Federal Reserve has already done what Shelton says it cannot do. It incorporated supply-side reasoning. It overrode Phillips Curve orthodoxy. It held rates lower than its own models recommended because it believed deregulation and technological innovation were changing the economy's structure. The question, then, is not whether the institution possesses this capacity. The archive proves it does. The question is what the institution requires before exercising it.

And the answer is evidence. The Greenspan Fed incorporated supply-side dynamics because the productivity acceleration was measurable and measured — the numbers were in the Greenbook, the staff modeled them, the data confirmed the thesis in real time. Shelton is asking the current Fed to anticipate productivity gains from policies not yet enacted, much less reflected in the data. Greenspan responded to observed reality. Shelton is requesting faith-based monetary policy from an institution that has demonstrated it will take the leap she describes — but only when the ground is already visible beneath its feet. (This evidentiary threshold is itself selective — as The Measure documented, the Fed's choice of inflation gauge has at times served institutional convenience rather than analytical rigor. The capacity for supply-side reasoning exists; its consistent application is another matter.)

If the Fed is neither philosophically incapable of supply-side reasoning nor historically unwilling to act on it, then the argument must move to different ground. Shelton's next proposal does precisely this — it shifts from the Fed's analytical framework to the nature of money itself.

The Instrument Already Rejected

Shelton proposes that the Treasury issue a gold-backed long-term bond. Holders would be compensated for losses in purchasing power through a conversion feature allowing them to take the principal back in terms of a pre-specified amount of gold at maturity. She frames this as a trust-building measure — "a signal of commitment to sound money" that would "compete with Bitcoin" and demonstrate the government's intent to move toward "sound finances."

The Federal Reserve's internal deliberations on gold-linked instruments span from the mid-1960s through the early 1980s. The institutional verdict is unanimous across every era, every Chairman, and every ideological faction within the system.

A gold-backed Treasury bond is a partial convertibility commitment. It does not restore a full gold standard, but it creates a contingent gold liability on the sovereign balance sheet. The Fed's institutional memory on this point is absolute: any convertibility commitment subordinates domestic monetary autonomy to the gold constraint. Shelton wants the Fed to cut rates freely while the Treasury simultaneously promises gold convertibility. The documents show these two objectives — her rate prescription and her gold prescription — are structurally incompatible with each other.

The procyclical liability problem is the mechanism through which this incompatibility becomes dangerous. When confidence in the dollar weakens — during recessions, fiscal crises, geopolitical shocks — gold prices spike. That is precisely when holders of Shelton's gold-backed bonds would exercise the conversion option. The Treasury's gold liability would expand at the exact moment fiscal capacity is most constrained. Charles Coombs, the Fed's Special Manager for international operations, warned in April 1968 that as the U.S. gold stock approached $10 billion, it would become a "psychological breaking point" that feeds on itself: market doubt triggers conversion demand, which depletes reserves, which deepens doubt. A doom loop embedded in the instrument's architecture.

The archive reveals that foreign central banks proposed exactly this kind of mechanism during the Bretton Woods era. They asked the United States to grant a "gold guarantee" for short-term dollar liabilities to discourage gold withdrawals. The U.S. declined every time it was suggested, because such a guarantee would have further constrained policy flexibility while creating an expanding contingent liability. Shelton's proposal is a domestic retail version of the same instrument that the Fed and Treasury rejected at the sovereign level when the requestors were allied central banks and the strategic stakes were higher.

The authority Shelton has already borrowed and the archive has already reclaimed. The institution chose what it called the "discipline of the market" and interest rate autonomy over the "discipline of gold" — and it made this choice with full knowledge of the alternatives, across three decades of deliberation, with the operational experience of having watched gold convertibility collapse under the weight of its own contradictions.

By this point in the assay, the pattern is established. The borrowed authority contradicts the borrower. The institutional blindness has been demonstrated not to exist. The proposed remedy has been tested at the sovereign level and unanimously rejected. What remains is the claim that carries the most intuitive force — the one where Shelton's diagnosis is most sympathetic and her prescription most appealing. If the argument survives anywhere, it survives here.

The Remedy That Doesn't Transmit

Shelton's most compelling argument is that the Fed "prevents access to capital" through high interest rates, damaging small businesses that need credit to hire and grow. She invokes the latest labor data showing weakness in small business employment and draws a direct line from the federal funds rate to the credit conditions facing entrepreneurs. The implied remedy is simple: cut rates, and capital flows to the businesses that need it most.

The Federal Reserve's own internal analysis — four decades of Senior Loan Officer Opinion Survey data, committee deliberation, and staff research — reveals that this remedy does not work as described. The diagnosis is valid. The prescription fails.

A sitting Reserve Bank president, inside the room, telling his colleagues that zero rates and trillions in asset purchases were not reaching the firms Shelton claims to be defending. The problem was not the level of the policy rate. The problem was structural — embedded in the banking system's risk appetite and the bifurcated architecture of American credit markets.

Governor Elizabeth Duke documented the bifurcation in June 2011, after rates had been near zero for over two years. She described competition for large corporate loans as "irrational" — banks falling over themselves to lend to big borrowers — while competition for small business credit remained "disciplined." That word was a euphemism for continued credit rationing. Low rates were flooding into the capital markets accessible to large corporations. The bank-dependent channel that small businesses relied on was clogged.

The recognition was not new. As early as 1990, Silas Keehn of the Chicago Fed observed that large firms were "less likely to be affected" by credit constraints because they operated in national and international markets with alternative capital sources. Small businesses remained "generally dependent on financial institutions, primarily commercial banking firms." Greenspan acknowledged in 1993 that banks had adopted "exaggeratedly high underwriting standards" even as the Fed was cutting rates. Charles Evans of the Chicago Fed framed the structural problem in April 2014 as a "wedge" or "clog" in the transmission mechanism: if the pipe between the policy rate and small business credit is blocked, lowering the rate at one end does not increase the flow at the other.

Months later, the pandemic proved her point. The Fed created the Main Street Lending Program and the Paycheck Protection Program Liquidity Facility — targeted, fiscal-adjacent interventions designed to bypass the failure of traditional monetary transmission. It built these emergency instruments because it knew, from its own data, that rate cuts and asset purchases would not reach small businesses. The archive even surfaces a road not taken: in late 2019, staff proposed a permanent Funding-for-Lending Program that would have used the discount window to incentivize bank lending to small firms. The Fed rejected it because it would need to operate for "several years." Then the crisis arrived, and the institution had to improvise at speed because it lacked the infrastructure it had declined to build.

This is where the assay reaches its conclusion. Shelton correctly identifies a real problem — the distributional asymmetry of monetary policy, the credit gap facing small business, the human cost of restricted capital access. The archive confirms every element of her diagnosis. Kaplan confirms it. Duke confirms it. Evans, Mester, and three decades of Senior Loan Officer Survey data confirm it. But the instrument she prescribes — lower rates — has been tested against this problem repeatedly, across multiple easing cycles, and the Fed's own data shows it does not transmit. The pipe is blocked. The solution the documents point toward is not the blunt instrument of the policy rate but targeted lending facilities, regulatory reform of community bank burdens, and supply-side interventions in the banking channel itself — precisely the kinds of structural measures that monetary easing cannot substitute for.

The Purity of the Metal