By Paul Blustein
Washington Post Staff Writer
Saturday, January 28, 2006
President Bush moved yesterday to fill two vacancies at the Federal Reserve, nominating Randall S. Kroszner, a University of Chicago economist, and Kevin M. Warsh, a White House economic aide, to become members of the Fed's seven-member board of governors.
Both men are specialists in banking regulation and markets rather than monetary policy, so Fed-watchers said the announcement signaled that the central bank is gaining additional expertise in the regulatory arena at a time when Ben S. Bernanke is expected to take over from Alan Greenspan as chairman. As for the Fed's decisions about whether to raise or lower short-term interest rates, yesterday's announcement reinforced the widespread expectation of a continuity in approach.
"When you had the news that Bernanke was replacing Greenspan, I expected policy would be very similar to what we have seen, although Bernanke's style might be different," said Raymond Stone, managing director of Stone & McCarthy Research Associates, an economic consulting firm. "The two new guys -- provided they're confirmed by the Senate -- would probably go with the flow of the other people, at least early in their tenure, although over a longer period that may change."
The seven members of the board sit on the 12-member committee that sets interest rate policy, together with five presidents of the Fed's regional reserve banks. The board has had two vacancies since August, when Edward M. Gramlich resigned as governor. Before that, Bernanke, a former economics professor at Princeton University, had left the board to become chairman of Bush's Council of Economic Advisers. Pending his confirmation by the Senate next week, Bernanke will take the central bank's helm when Greenspan's term ends on Tuesday.
In years past, presidential nominations of Fed governors were sometimes aimed at tipping monetary policy in the direction of lower interest rates, even though that might risk sparking inflation. But that has been much less true in recent years as a consensus has formed in the economics profession that the best way to sustain growth is to keep inflation in check. Important differences remain about whether the Fed should set an explicit inflation target and whether it should seek to restrain steep increases in stock and housing prices.
A White House spokeswoman said the administration's nominees would not be available for comment as they await Senate confirmation.
As is typical of many of his University of Chicago colleagues, Kroszner, 43, is a strong believer in free markets -- "a solid, conservative, Chicago school economist," said Edwin M. Truman, a former Fed staffer who is now a scholar at the Institute for International Economics. Kroszner's master's and doctoral degrees in economics, however, are from Harvard.
Kroszner expressed an upbeat view of the U.S. economic outlook last month, telling an audience at Chicago, "The economy continues to post a solid and consistent performance no matter what Mother Nature nor nattering nabobs of negativism may throw at it."
Warsh, 35, is special assistant to the president for economic policy at the White House, where he works on the National Economic Council. A graduate of Stanford University and Harvard Law School, he worked previously as a mergers and acquisitions specialist at the investment bank Morgan Stanley.