Fed Vacancies Challenge Bush
W A S H I N G T O N, Feb. 14, 2001 -- Wanted: Republican economists or bankers, with decades of high-level experience, willing to take a huge pay cut and move to the nation's capital to work inthe shadow of the world's most revered central banker.
From the day he took office, president Bush had three decisions to make regarding the seven-member Federal Reserve Board of Governors. This is the largest number of Fed appointments at the start of any presidential term and giveshim a chance to make a big mark on the powerful central bank.
There are two vacant governors' chairs and Bush must also rule on whether to renominate Fed Vice Chairman Roger Ferguson, for whose reappointment Chairman Alan Greenspan is said to be lobbying.
Many economists believe Bush will fill the two vacant governor slots with candidates who will advocate lower interest rates and taxes in the Fed's marbled hallways.
"He has an awful lot of power now via these appointments," Wingspanbank.com chief economist Jim Annable said.
The Fed's Role
By controlling interest rates in the U.S. economy, the Fed affects the wealth and spending decisions of every American. That makes the Fed a tempting target for political influence.
And as fiscal policy and monetary policy become intertwined as proposed ways to keep the record U.S. economic expansion going, having pro-tax cut, anti-rate increase Republicans on the Fed ship will help Bush push his policies.
"They're going to find people for the Fed that lean the same way," Economy.com chief economist Mark Zandi said.
However, Zandi and other economists noted that Bush should be careful not to appear to threaten the Fed's independence, which Chairman Alan Greenspan has clung to tightly during his 13-year tenure. If Greenspan felt Bush was going too far in stacking the deck toward lower interest rates, he could air his grievances during his weekly breakfast meetings with his old friend, Treasury Secretary Paul O'Neill.
It Wasn't Meant to Happen
When the Fed was founded by Congress in 1913, lawmakers sought to develop a system in which one president would not hold too much sway over the central bank.
Governors serve for 14-year terms, a new one starting every even-numbered year. Both the Fed chairman and the vice chairman are picked from among the governors for four-year terms.
Ferguson, who was already on the board, was promoted to vice chairman in 1999, but his governorship has officially expired, leaving Bush with the option of reappointing him or picking a new vice chairman.
Two other governor seats have been vacant for more than a year and a half.
Bipartisan Economics
Republican lawmakers blocked one of President Clinton's Fed picks and signaled they would not consider any of the Democrat's choices for the central bank with an election — and a potential Republican presidency — on the horizon.
But sources believe Ferguson, a Democrat, is likely to win reappointment, following some heavy lobbying on the part of Greenspan, who holds the vice chairman in high regard.
Such a move would be an important gesture from Bush, who has been trying to get on good terms with Greenspan, considered by many as the hero of the record U.S. economic expansion.
Also, Bush would be eager to mend fences after his own father clashed with the Fed chairman when he was president. Wall Street and private economists who have a great deal of respect for Ferguson would also be pleased.
"I think Ferguson is an enormous asset for the Federal Reserve," said former Fed governor Lyle Gramley, who now advises the Mortgage Bankers Association, noting that Ferguson has proven to be a smart, hard worker who communicates the Fed's views well to the public.
"He's everything a good governor should be," Gramley said.
And then there were Two
That would leave two positions for Bush to fill, although some economists think he has put the Fed vacancies on hold since he still has so many government positions to fill.
When he does make the appointments, the new president is seen trying to continue his commitment to bring a diverse group of people to Washington. Currently Ferguson, who is black, is the only minority on the board. The rest are white men.
For that reason, most economists see Bush seeking out a woman to augment the Fed's ranks.
Easier said than done, analysts note. Female economists and bankers are few and far between. And many of the women who have strong potential are Democrats, they say.
Some economists also note the Fed Board is lacking someone with practical banking experience, an important skill since the Fed is also a key bank regulator.
Deal Breakers
But the Fed may have a tough time finding bankers willing to take the smaller pay and to lose their stock options. Fed governors make $141,300, not a bad salary for most Americans but well below what top bankers and economists can command.
The other hurdle for luring qualified people to the Fed is Greenspan himself, analysts said. The Fed chief has achieved practically a God-like status in his tenure, so anyone joining the Fed will have to live in the 74-year-old's shadow.
Bush better get used to selling the Fed jobs, since he might have a few more Fed posts to fill in his four-year term.
Laurence Meyer's term ends in January 2002. Meyer, who has clashed with Greenspan on how fast the economy can grow without rising inflation, is unlikely to seek reappointment.
The term of Edward Kelley — the only remaining Republican-chosen board member with the exception of Greenspan — ends in early 2004, but some in financial markets have speculated that Kelley, who has had health problems, may retire early.
Last, but not least, is the biggest job of them all. Many analysts believe Greenspan will call it quits when his term expires in June 2004, and some believe he could leave earlier.