Federal Reserve’s Vice Chairman to Leave Post Aug. 3 : Economy: Manuel Johnson will return to academia. He says he expects Alan Greenspan to be reappointed to another four-year term.
Manuel H. Johnson, vice chairman of the Federal Reserve, announced Thursday that he will resign to return to academic life, indicating that he expects Fed Chairman Alan Greenspan to be reappointed to another four-year term next year.
As a top policy-maker at the Federal Reserve, Johnson played a key role in directing U.S. monetary affairs during the last four years. He helped keep inflation relatively low while sustaining economic growth for an unusually long period--more than 7 1/2 years so far.
“The Fed can take a lot of credit for the settled condition of the economy,” Johnson said in an interview. “I leave with a complete vote of confidence in my colleagues and in Chairman Greenspan.”
Johnson is returning to George Mason University, a fast-rising school in Washington’s Virginia suburbs.
His decision to leave the Fed when his term as vice chairman ends Aug. 3 will give President Bush the opportunity to appoint another person to the seven-member board of governors.
The Fed board, together with representatives from the 12 regional Fed banks, holds the credit reins of the economy and has a strong influence on U.S. interest rates.
The Times reported in March that Bush told a friend and adviser that the Fed’s high-interest-rate policy was increasing the risk of a recession and that he might not reappoint Greenspan as chairman when his term expires in 1991. Bush later insisted that there was “no bubbling war” between the Administration and the Fed, but he continued to press the central bank to lower interest rates.
Although no vice chairman has ever become chairman of the Fed, Johnson--only 41--was widely considered a possible successor to Greenspan. He still could be asked to return to the Fed some time in the future.
On Thursday, however, Johnson went out of his way to urge the White House to reappoint Greenspan for another four-year term. If Greenspan is not named again next summer, Johnson said, he “would not want to assume office under those conditions.”
President Ronald Reagan named Johnson to the Fed’s board in 1986 after he had served several years as a senior Treasury official.
Considered a less flamboyant and more sophisticated advocate of supply-side economics than others in the Reagan Administration, Johnson brought new perspectives to the central bank. With the money supply discredited as a useful guide to determining monetary policy, Johnson helped persuade the Fed to pay closer attention to such future indicators of inflation as the dollar’s value on exchange markets, ups and downs in commodity prices and changes in bond market prices.
Johnson played a role in early 1986 in challenging former Fed Chairman Paul A. Volcker’s iron-fisted control of monetary policy. He emerged as an important ally of Greenspan, who took over as Fed chairman in August, 1987, and was also a bridge between the Reagan appointees on the Washington-based board and the regional bank presidents.
“The vice chairman and I have been an effective team,” Greenspan said in a statement. “I’ll miss him.”
“The Fed is losing a centrist between the inflation hawks on one side and the recession worriers,” said Irwin L. Kellner, chief economist at Manufacturers Hanover Trust Co. in New York,
The Fed has been trying to squeeze inflation out of the economy by keeping interest rates high. So far, the policy has resulted in relatively slow economic growth but no recession. The Fed, which has not eased short-term rates since late December, is not expected to let rates drop unless there are clear signs that consumer spending is collapsing or inflation is abating.
Despite Johnson’s important role, his departure is not expected to swing monetary policy away from its current path.
White House officials said they have not begun to consider replacements for Johnson. Bush’s first appointment to the Fed board, former Treasury official David Mullins, has just assumed his post.
“We have a very high regard for Manley Johnson,” said Michael Boskin, Bush’s chief economic adviser. “We’ll set a search committee for the most qualified man or woman. There are no leading candidates.”
Speculation about possible new Fed governors focused on John Taylor, a member of Bush’s Council of Economic Advisers; James Gwinty, an economist at Florida State University, and Wendy Gramm, head of the Commodity Futures Trading Commission.
In addition to returning to George Mason, Johnson will also assume the co-chairmanship of a new private group called the G-7 Council that wants to help improve international economic policy.
“I didn’t want to go to Wall Street,” he said.
Johnson occasionally has been critical of some aspects of the Bush Administration’s efforts to coordinate economic policy with other nations under the umbrella of the so-called Group of Seven. The gatherings bring together finance ministers and central bankers from the seven leading industrial democracies: the United States, Canada, Britain, France, Italy, West Germany and Japan.
But Johnson, who said his background at both the Treasury and the Fed helped to bridge the differences between the two American institutions, said that the G-7 Council “will not be confrontational, working instead to bolster and advance the G-7 process.”
