Federal Reserve Vice Chairman Manuel H. Johnson, who has held posts at the Treasury or the central bank for nine and a half years, resigned yesterday to accept an endowed teaching position at George Mason University in Fairfax.
Johnson said that he did not want to commit himself to a second four-year term as Fed vice chairman after his term expires Aug. 3. He could have continued as a Fed governor, without being vice chairman, until the year 2000. "This was the appropriate time to return to private life," he said.
The resignation caught most officials at the Fed and the White House by surprise. There was no suggestion yesterday of who the Bush administration might name to succeed him at the Fed, the institution that more than any other in U.S. government has been directing the course of the nation's economy.
That choice will be closely watched, however, since the White House has complained publicly upon occasion that the Fed is keeping interest rates too high.
As vice chairman of the Fed, Johnson generally has been a conciliatory force helping to bring a sometimes sharply divided board into agreement, but that was not the case when he was first named to the board by President Reagan in late 1985. At one of his first board meetings, he joined in an unusual and successful challenge to Paul A. Volcker, chairman at the time, to force a cut in interest rates.
And although he largely has supported the current Fed chairman, Alan Greenspan, his occasionally outspoken comments on current monetary policy issues have created some headaches, said one Fed official. Generally, the official added, "I think he has played a useful role."
Financial market analysts said they did not expect Johnson's departure to cause any change in the Fed's credit and interest rate policies, which now are focused on keeping the U.S. economy growing at no more than a modest pace in order to keep inflation under control.
The vice chairman said yesterday at a press conference in Washington that one reason he is "comfortable" leaving this summer is that there is a broad consensus among Fed policy makers that he does not expect to change.
"We see the economy continuing to grow at a steady, sustainable pace with gradually moderating inflation," Johnson said. "There is do doubt this Fed is committed to achieving reasonably stable prices."
Johnson, 41, said he would not be a candidate for the Fed chairmanship now held by Alan Greenspan when the latter's term expires in August 1991. "I fully support Chairman Greenspan's reappointment," he said.
"Maybe sometime down the road" he would like to be considered, Johnson said, but that would be "well after Greenspan is gone."
Johnson taught economics for four years at George Mason University before becoming a deputy assistant Treasury secretary in the Reagan administration in 1981. He will be returning to the university to take the endowed Koch Chair in International Economics and to head a new Center for Global Market Studies being established there.
He also plans to become co-chairman of a new nonprofit group called the G-7 Council, whose purpose will be to provide analysis and support for coordination of economic policies among major industrial nations. The other chairman is David M. Smick, publisher of the International Economy magazine and a longtime friend of the vice chairman.
As vice chairman, Johnson earns $89,000 a year. The last member of the Fed's board to resign, H. Robert Heller, specifically cited the pay as his reason for leaving to join Visa International in San Francisco.
Johnson declined to say what he will be paid at George Mason, which has a reputation for paying unusually high salaries to attract noted individuals to its faculty.
Johnson did say salary was a factor in his decision but not the overriding one. "If I were doing this purely for salary, I would not be returning to academia," he said.
Greenspan issued a statement saying, "I deeply regret, but understand, Manley Johnson's decision to return to the private sector after 10 consecutive years of government service. The vice chairman and I have been an effective team. I'll miss him."
Johnson was assistant secretary of Treasury for economic policy when he was named to the Fed by Reagan in late 1985.
When the Reagan administration pushed through large income-tax cuts in 1981, Johnson had a reputation for being a conservative supply-side economist who believed that lowering tax rates was the key to strong economic growth.
Fed watchers widely expected that as a Fed governor, Johnson would favor easier money policies and low interest rates while being an administration voice in the inner councils of the central bank.
Within months, however, some other supply-side economists were complaining publicly that Johnson had been "captured" by the central bankers.
They cited votes on policy questions that indicated the vice chairman was willing to try to control inflation in traditional central bank fashion -- using interest rate increases to keep the economy from overheating.