Alice M. Rivlin, vice chairman of the Federal Reserve Board, announced yesterday that she will resign after three years in the job, creating an opening for a potential successor to Chairman Alan Greenspan.
Rivlin, 68, said the move would allow her to focus more on her family and on her role as chairman of the D.C. Financial Control Board. "I hope to spend more time and to be more effectively involved in the city than I have been able to be at the Fed," she wrote in her resignation letter to President Clinton, adding: "I have had a wonderful time at the Federal Reserve."
But the announcement, which was unexpected, triggered speculation among administration officials and people who know her that Rivlin had found the No. 2 post at the Fed somewhat unfulfilling -- as have other holders of the job -- because of the immense power wielded by the chairman over the Fed's policy decisions to raise and lower interest rates. Her predecessor, Alan Blinder, also resigned abruptly.
The move raised the prospect of a scramble to succeed Rivlin by people aspiring to eventually succeed Greenspan. Although many administration insiders and Wall Street analysts expect Clinton to reappoint the chairman when his four-year term expires next year, Greenspan is 73, and if he should choose to retire, the vice chairman presumably would be considered a strong candidate for the top post. Associates of Rivlin have said they believe she once harbored hopes of becoming chairman herself someday but the chances that she would succeed Greenspan have grown increasingly remote.
"She figures Greenspan is going to be reappointed, and she's never been one who's been content to play second violin," said one administration official, who added: "I think there will be some campaigning for the job, given the chairman's age, since one would assume the person who takes over Alice's job would be among the front-runners to succeed to the chairmanship."
But another official said Rivlin "had just done the job for a while, and I think she was just ready to go back to Brookings." Rivlin will rejoin the Brookings Institution, a Washington think tank, upon leaving the Fed. According to this official, Rivlin informed Clinton's top economic advisers of her intentions "a couple of weeks ago, so we could think about a replacement," and "I don't think it will be long before there's a successor announced, or at least decided on."
One possible choice, some officials speculated, is William McDonough, president of the Federal Reserve Bank of New York, who has long been rumored as a possible Fed chief. McDonough may be reluctant to take the job, since he already enjoys considerable clout as head of the New York Fed, the most important of the Fed's regional reserve banks because of its supervision of the nation's largest commercial banks and its interaction with Wall Street.
Before taking the Fed job in mid-1996, Rivlin served as director of the Office of Management and Budget, where she played a key role in pushing the Clinton administration toward a disciplined fiscal policy that many economists credit with prolonging the current U.S. economic expansion. In her letter, she said it had been "an enormous privilege to be part of the Clinton economic team and help put together the policies that turned that huge budget deficit into a surplus. We did the right thing and it worked!"
The news unsettled financial markets slightly when it broke late yesterday afternoon because of the widespread perception that, among the 12 members of the Fed's policymaking Federal Open Market Committee, Rivlin is a voice for keeping interest rates low. After cutting the short-term rate it controls three times last fall amid the depths of the global financial crisis, the committee recently said it was more inclined to raise rates than to lower them, because of the possibility the economy's rapid growth might rekindle inflation.
But a number of analysts said they expect Rivlin's departure to have little impact on Fed policy, in part because Clinton is likely to nominate a person with similar economic views. There is already another vacancy on the seven-member board because of the departure a year ago of Fed governor Susan Phillips. Administration officials have said that Carol J. Parry, an executive vice president of Chase Manhattan Bank, is the front-runner to succeed Phillips.
"I think she's carried the flag for prudent central banking," Robert DiClemente, head of U.S. economic research and a veteran Fed watcher at Salomon Smith Barney in New York, said about Rivlin. "A lot of people have wanted to paint her as somehow uncommitted to the war against inflation, but the test of a good policymaker is whether they help move policy in the right direction, and policy has gone in the right direction, so she should be given credit along with the others."
Greenspan issued a statement praising Rivlin, saying, "Her wisdom influenced all of our deliberations." Clinton also hailed her in a statement for "helping usher in a new era of budget surpluses" and said her work on the D.C. control board had played "a critical role in helping turn around the finances of our capital city."
The control board was created by Congress to oversee Washington's operations during the mayoral reign of Marion Barry, when the city's finances were in virtual collapse. Under Rivlin's chairmanship, the board handed control of day-to-day activities back to the elected government when Anthony A. Williams became mayor, although it still monitors the city's finances.
Williams said yesterday he is pleased that Rivlin -- who repeatedly has expressed a desire to put the control board out of business in the next few years and return power fully to elected officials -- will have more time to spend on District matters as the board's role diminishes. "I have great respect for Alice Rivlin and the contributions she has made to our city," Williams said.
"The Federal Reserve will undoubtedly miss her steady hand and expertise, but we are heartened that she will continue to devote herself to the District. I look forward to working with Alice to solidify our financial recovery and bring democracy to our nation's capital."
Staff writer David Vise contributed to this report.
Alice M. Rivlin in Profile
Education: Bryn Mawr College, 1952 (BA); Radcliffe College, 1955 (MA), 1958 (PhD); all in economics.
Career highlights: Member of the Brookings Institution staff, 1957-66, 1969-75, 1983-93; assistant secretary for planning and evaluation at the Department of Health, Education and Welfare (1968-69); director of the Congressional Budget Office, 1975-83; deputy director of the White House Office of Management and Budget, 1993-94, director, 1994-96; became vice chairman of Federal Reserve Board of Governors in June 1996.
Personal: Married to economist Sidney G. Winter; three children, three grandchildren.
CAPTION: Alice M. Rivlin heads the D.C. control board.