Bush Calls for Independent Fed Chairman
Wednesday, October 5, 2005
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 effective."
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 legacy."
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 chairman.
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."