Greenspan replacement: Bush’s leash is tugged


Richard Moore

    President Bush said yesterday that he is looking for a
    successor to Federal Reserve Chairman Alan Greenspan who would
    be seen as politically independent and who would inspire
    global confidence.

enough of that talk about Republican party favorites!

bankers rule.


Bush Calls for Independent Fed Chairman 

President Says Detachment From Politics Would Instill Global
Confidence in Greenspan's Successor

By Nell Henderson 
Washington Post Staff Writer 
Wednesday, October 5, 2005; D01 

President Bush said yesterday that he is looking for a
successor to Federal Reserve Chairman Alan Greenspan who would
be seen as politically independent and who would inspire
global confidence.

"The nominees will be people that, one, obviously can do the
job, and secondly, will be independent," Bush said in his
first public comments on the subject. He said he has not yet
seen any of the names of possible nominees gathered by his
staff. "It's important that whomever I pick is viewed as an
independent person from politics."

Bush also indicated he will have a global audience in mind
when he makes his selection. He said, "It's the independence
of the Fed that . . . gives people, not only here in America,
but the world, confidence."

The president's statement does not necessarily mean that his
nominee for Fed chairman will be unversed in partisan economic
policymaking, according to analysts and political observers
who are closely following the process. Nor does it preclude a
nominee who has a close working relationship with Bush, who
has shown a penchant for elevating loyal advisers to higher
posts -- as he did Monday by nominating his White House
counsel and former personal lawyer Harriet Miers to the
Supreme Court. Most of the frequently named candidates for Fed
chairman are Republicans who have advised or worked for Bush.

But Bush's remarks do show that he understands it is critical
for the public and global financial markets to believe that
Fed policy is based on economics, not politics, analysts said.

"The White House recognizes that it is essential for its
overall economic credibility that the tradition of central
bank independence be maintained," said Nicolas Checa, a
managing director of Kissinger McLarty Associates, an
international consulting firm. "In the current environment of
rising inflationary expectations, the next Fed chairman must
have unimpeachable political and economic credentials to be

Politicians often have a short-term interest in having low
interest rates in an election year because they make it easier
for voters to borrow and spend. Nevertheless, the Fed often
raises interest rates to prevent the economy from overheating
and fueling higher inflation in the long run.

The Bush administration sees that a successful, independent
Fed will keep inflation low and the economy healthy, analysts
said. That, in turn, should help the administration win
support for its economic proposals, such as making permanent
the president's tax cuts, altering Social Security and
simplifying the tax code.

"This is a very important choice for the president. He wants
to extend the Bush recovery through the end of his second term
and beyond," said Cesar V. Conda, a former policy adviser to
Vice President Cheney. "This pick may define his economic

Some critics were more skeptical. "The president has been
coached to put this boilerplate language out in public," said
Thomas Schlesinger, executive director of the Financial
Markets Center, a nonprofit organization that follows the Fed.
"These are defensive comments from a White House that is
taking a lot of flak for the quality of its appointments. . .
. They want to defuse the fear out there that  Karl Rove is
going to appoint a hack to the Federal Reserve."

For more than a year, the list of possible candidates has
included Harvard University economist Martin S. Feldstein,
Columbia University Business School Dean R. Glenn Hubbard and
former Federal Reserve Board member Ben S. Bernanke.

Feldstein has advised Bush and has supported his policies in
op-ed articles. Hubbard was Bush's first chairman of the
Council of Economic Advisers and helped craft the 2003 tax
cut. Bernanke is Bush's current Council of Economic Advisers

Two other possible candidates without such political ties are
Fed Vice Chairman Roger W. Ferguson Jr., a Democrat, and Fed
board member Donald L. Kohn, who is not registered with any
party. Both are highly regarded  by the Fed staff and have
worked closely with Greenspan for many years.

Recently, White House officials have received positive
responses from Wall Street when they floated the name of
former Fed board member Lawrence B. Lindsey, who was Bush's
key economic adviser in the 2000 presidential campaign.
Lindsey was a chief architect of Bush's economic program in
the early days of the president's first term and ran his
National Economic Council until late 2002.

Lindsey left the administration in late 2002 with Treasury
Secretary Paul H. O'Neill when the president decided to
restructure his economic team. Lindsey was criticized within
the administration at the time of his departure for poor
management, but he has  supported the president since. He
retains strong support from some White House officials.

Political experience and ties do not mean someone cannot be an
independent Federal Reserve chairman, said Kevin A. Hassett,
director of economic policy studies at the American Enterprise
Institute. After all, he said, Greenspan is widely regarded as
a successful Fed chairman, and he has a long history of
involvement in partisan politics and economic policy debates.

Some Fed colleagues and academic economists have criticized
Greenspan's willingness to engage in political debates beyond
Fed policy, saying that doing so threatens the Fed's
independence. Some have said he has at least fostered the
appearance of being politically close to the Bush White House.

But none of those critics has said that Fed policy was
improperly influenced by the White House or Congress during
Greenspan's 18 years as chairman.

"I don't think that experience in government would preclude
one from being a candidate" for Fed chairman, Hassett said.
"You have to understand how Washington works."

© 2005 The Washington Post Company 

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