Administration Backs Review of Fed Structure

The Bush Administration said Wednesday that it favored a review of the structure of the Federal Reserve, the independent central bank that the White House has blamed for being too slow to help the economy in this election year.

Analysts said the Administration was almost desperately looking for a scapegoat for the lackluster economy, President Bush’s No. 1 political problem as he seeks reelection in November.

Administration officials have already repeatedly blamed the Fed for failing to lower interest rates fast enough to spur the economy’s rate of growth.

Treasury Secretary Nicholas F. Brady told the Senate Banking Committee that while it was “terribly important” to maintain the Fed’s independence, he would favor studying the central bank’s structure.

“A useful review could be undertaken, which would review the operations of the Fed,” Brady said at a hearing called to provide an update on the bailout of failed savings and loans.

In particular, Brady said, it should be examined whether district Federal Reserve bank presidents--who, unlike Fed governors in Washington, are not appointed by the President--should vote on monetary policy.

“I think that is a subject that should be thoroughly discussed,” Brady said.

But the Treasury secretary said his department has not begun a study and he does not necessarily favor allowing a newly elected President to pick his own Fed chairman within the first year of taking office.

Some financial analysts were surprised by Brady’s call to review the policy-making structure of the Fed and said it could jeopardize the central bank’s jealously guarded independence.

“To me this is an act of desperation and very surprising,” said David Jones, chief economist with Aubrey G. Lanston & Co.

“It seems that Bush Administration officials are trying to blame everybody but themselves for the problems in the economy, when the fundamental problem is a lack of vision, a weak program and ineffectiveness in selling the program to the public,” he added.

Jones said further that he thought the Administration was trying to intimidate the Fed.

Brady, speaking to the committee, denied that his words were an implied threat to the Fed’s independence.