Wall Street is loaded with speculation about the future of Federal Reserve Board Chairman Paul A. Volcker and recent, informal soundings of financial opinion leaders suggests growing doubt about Volcker's reappointment.
One top-level source, with close ties to Republicans in Washington, says his view is that the chances of Volcker being reappointed "are less than 50-50 by a lot." According to this executive, "as each hour goes by, the appointment becomes less and less likely.
"If the economy continues the way it is, you can safely jettison Volcker," said the source. "If it gets better, you clearly don't need him. If it gets slightly weak or begins faltering, then he President Reagan has got to get a new guy."
That view, though fairly logical as these guessing games go, does not take into account the potential political consequences of replacing Volcker when his term expires in August just as presidential politics begins heating up.
"Given Mr. Volcker's credibility in both the domestic and international financial markets, Mr. Reagan may view it as a dangerous risk not to ask the chairman to stay on," wrote Jack Lavery, the Merrill Lynch, Pierce, Fenner & Smith Inc. chief economist, in a weekly economic commentary.
In Lavery's view, the most substantial threat to Reagan's reelection is the possibility of a "premature truncation of the recovery" driven by a rise in interest rates. As a result, with interest rates the Fed's most immediate economic policy lever, Lavery thinks Reagan will ask Volcker to stay put.
The topic of all this attention, rumor and idle chatter--let's call it Volckertalk--is one of the few subjects of political gossip that both Washington and New York share. The stuff of Washington--who's up and who's down within the White House staff, whose parties are the hottest along Embassy Row or the Washington area's never-ending search for its version of New York City's many perfect pizza slices or bagels--generally is greeted by yawns here.
Volckertalk is another matter entirely. Even among mid-level Wall Street money managers and brokers, Volckertalk seems just as pressing as the latest stock tip. The reasons are obvious.
There is an underlying skepticism on Wall Street about the ability of the economy to sustain its tepid recovery and an accompanying fear among many that a piece of bad news on the economic front could, for a time, halt or reverse surging stock prices. Last week's substantial selling on the major exchanges after Morgan Stanley & Co. investment managers turned at least temporarily sour on stocks is only the most recent evidence of that concern.
That fragility and the prospect that a new Fed chief might not understand Wall Street's worries is what prompts the stream of Volckertalk. It is a time when the booming financial markets want little from Washington other than a steady hand and at least the perception of certainty in fiscal and monetary policies.
"We don't want someone who will create a tremendous amount of uncertainty," said Maury Harris, vice president and senior business and financial economist at Paine Webber Inc. "We got burned on the supply side experiment, but things seem to working better now. Inflation looks good and the economy is up again. What Volcker has done is working now."
Volcker is valued also for his political independence, as most see it. A Fed nominee with close political ties to the White House would not be a particularly popular choice here. For example, Treasury Secretary Donald T. Regan, who has figured in the speculation about a Volcker replacement, is described by Edward Yardeni, the Prudential Bache Securities economics director, as being "a little too close to the president" and having "absolutely no experience in monetary policy."
But beyond market concerns, what is helping to fuel the Volckertalk is the nature of the personalities of the saga--Volcker's reported interest in returning to the more simple and lucrative life of the private sector, Regan's often-discussed limitless ambition, and the president's suggested concern about having "his own" man at the helm of the Fed.
Moreover, the fact that the popular and highly regarded economist Alan Greenspan, who is based in New York, is reportedly the leading candidate to replace Volcker also keeps Volckertalk a lively subject. Conversely, conversations are also built around the fact that the second most widely discussed prospect, Fed Vice Chairman Preston Martin, is as little known on Wall Street as Greenspan is well known.
Increasingly, however, among those with links to the Fed, it is thought that Volcker would take the job if offered, a change in perception over recent months. "Everyone who knows him thinks he'll take it," said one brokerage source.
While that Volckertalk angle may be losing its fervor, there seems to be more and more discussion given to Regan's interest in the job. "He wants it," claims a Wall Street source who pleaded for anonymity. Regan's delicate assertions that the president should nominate the individual of his own choosing, while generally denying his own interest in the Fed job, has not quieted that rumor.