Bush, Gore seen leaving ideology out of Fed picks

By Caren Bohan/Reuters

WASHINGTON (Reuters) - White House hopefuls George W. Bush and Al Gore can agree on one thing: neither would be inclined as president to mess with the Federal Reserve under Alan Greenspan.

Whoever wins the presidency will have the power to select members of the powerful and politically independent Fed Board of Governors, of which Greenspan is the chairman.

But Greenspan, whose interest-rate policies have guided the economy through its longest expansion ever, has no reason to worry about his job security.

Just two months ago, he was sworn in to serve a fourth four-year term. Even if his seat were up for grabs, Democrat Al Gore and Republican George Bush would be falling over each other to proclaim support for keeping him.

But the election will influence the Board of Governors, which forms the core of the Fed's interest-rate setting Federal Open Market Committee (FOMC). The seven-member board has two empty seats that probably will not be filled when the new president takes office in January.

Gore and Bush aides say ideology will not play much of a role in Fed selections. The Fed hasn't been much of a political target lately, so most analysts take them at their word.

"Bush and Gore would appoint competent Fed people, and I think there would be a minimal impact from the election on the direction of monetary policy," said chief economist David Jones of Aubrey G. Lanston and Co. in New York.

Lawrence Lindsey, Bush's chief economic adviser, said Bush would seek "top-quality" people from a variety of backgrounds -- academia, the financial markets, business and government.

Alan Blinder, a former Fed vice chairman now advising the vice president in his White House bid, said Gore would look for "sound views on macroeconomics" and might tap talent from those who have worked on President Clinton's economic team.

If ideology enters the picture at all, Blinder said it would be on the less-high profile tasks the Fed handles, such as overseeing banks and carrying out fair-lending laws.

"The honest answer is, where the parties disagree in terms of Federal Reserve policy, it's not so much on monetary policy -- everybody thinks Alan Greenspan is the greatest thing since baked bread -- but on the regulatory issues," Blinder said in a recent interview with Reuters Television.

Regulatory issues have been a factor in attempts to fill one of the two empty seats on the Fed board. A year ago, Clinton proposed retired banker Carol Parry, but a hearing on her confirmation has been blocked by Senate Banking Committee Chairman Phil Gramm, an ardent foe of the community lending laws on which Parry is an expert.

When pressed on the issue of how the election outcome could affect the make-up of the Fed, some analysts fall back on stereotypes that associate Democrats with laxer interest-rate policies and Republicans with conservatism.

But even those who invoke such stereotypes note history does not bear them out.

Two decades ago, Democratic President Jimmy Carter named Paul Volcker as Fed chairman, ushering in an era of stern interest-rate policies that extinguished double-digit inflation at what was initially a high cost for economic growth. Yet economists believe the economy has reaped a long-term payoff.

Former President Ronald Reagan named Greenspan, a Republican with deeply held free-market beliefs, to succeed Volcker in 1987. He has been reappointed both by George W. Bush's father, a Republican, and by Democrat Bill Clinton.

As analysts survey the inflation "hawks" and "doves" on the Fed board, Greenspan, who embraces theories of a technology-driven New Economy, is seen as having a more lenient interest-rate bent than Clinton appointee Laurence Meyer.

It is partly owing to Greenspan's successes that politicians have steered clear in recent years of meddling in the Fed's interest-rate decisions. Politicians now generally buy into the idea that sound interest-rate policies can keep inflation low, which is best for the economy in the long run.

At 74 Greenspan is, by all accounts, in good health and expected to serve out his term. When he does leave, filling his big shoes would be a challenge for any president.

Sen. John McCain, who unsuccessfully sought the Republican nomination for president, probably summed it up best: "If Mr. Greenspan should happen to die, God forbid, I would do like we did in the movie 'Weekend at Bernie's' -- I'd prop him up, put a pair of dark glasses on him and keep him (going) as long as we could."

Assuming that Greenspan would retire in 2004, names that get bandied about on Wall Street include former Treasury Secretary Robert Rubin, current Treasury Secretary Lawrence Summers and Blinder for a Gore selection. Harvard economist Martin Feldstein, Stanford University's Michael Boskin and Lindsey are mentioned as possible Bush picks.

The new president would have to hew to one rule: Wall Street would likely have veto power over any Fed chairman decision.

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