Republican Greenspan in Line for Third Term as Chairman of the Fed

Alan Greenspan has been whispering economic advice into the ears of Republican presidents going back to Richard Nixon, but that doesn’t mean he can’t be Bill Clinton’s man.

Indeed, the Democratic president appears set to nominate Greenspan for a third four-year term as Federal Reserve Board chairman in large part because of his Republican credentials.

The White House insisted Monday that the president had received no recommendations yet from his National Economic Council, but administration officials, who spoke on condition of anonymity, said there were no other candidates.

Several officials had expected the Greenspan appointment last week. But they said the announcement was delayed because of trouble filling two other vacancies on the seven-member Fed board.

The president had been expected to nominate New York investment banker Felix Rohatyn as vice chairman of the Fed to replace Alan Blinder, who resigned last month to return to teaching at Princeton.

But Rohatyn’s proposed nomination appeared in trouble Monday, with Sen. Connie Mack (R-Fla.), a member of the Banking Committee and chairman of the Joint Economic Committee, leading a charge to derail it.

Mack circulated a Joint Economic Committee staff memo attacking Rohatyn’s long-held liberal views in support of activist governmental solutions to various problems.

Noting that Clinton had declared the era of big government over in his State of the Union address, Mack said of Rohatyn: “It would be difficult to find a nominee more at odds with Bill Clinton’s rhetoric.”

Congressional sources, who also spoke on condition of anonymity, said White House officials had been unable to find any Republicans on the Banking Committee willing to support Rohatyn, forcing the administration to reconsider whether to nominate him.

At the White House, presidential spokesman Mike McCurry refused to discuss the recommendations Clinton was receiving, but he said the White House is concerned “that these appointments to what should be and must be an independent board are becoming enmeshed in politics.”

Private economists said Clinton’s trouble winning approval for Rohatyn, a Democrat, demonstrated the political risk of nominating anyone other than Greenspan, a Republican first nominated to the Fed in 1987 by Ronald Reagan and renominated by George Bush.

Various Democrats in Congress, including House Minority Leader Richard A. Gephardt (D-Mo.) have complained that Greenspan has been overly concerned about fighting inflation and less worried about people losing their jobs because the economy was growing too slowly.

Analysts said that although the pro-growth Clinton might have preferred someone else as Fed chairman, he bowed to political realities.

“The Senate is now controlled by Republicans and this is an election year and the president is resigned to that fact,” said Larry Chimerine, chief economist at the Economic Strategy Institute, a Washington think tank that has accused the Fed of pushing interest rates up too high in 1994 and being too slow to ease credit in the last 12 months.

But other analysts say Greenspan has worked hard to build ties with Clinton and has provided critical support at key times such as Clinton’s 1993 deficit program and the 1995 Mexican bailout, and more recently by warning of the consequences of not raising the debt ceiling.

In addition, although Greenspan’s interest-rate increases have been blamed for the sluggish economy, the Fed has cut rates three times since July and those rate reductions should ensure an economic rebound by the time voters go the polls in November.

“The Fed has done a superb job in finessing this business cycle, setting it up to last a long, long time,” said Allen Sinai, chief global economist at Lehman Bros. in New York.

Several economists predicted the administration will quickly abandon Rohatyn for the No. 2 job in favor of some other liberal, but less controversial, nominee such as Harvard economist Benjamin Freidman or Peter Kenen, an economist at Princeton.

“I just don’t think the administration wants to pick a major fight on the vice chairman’s position,” said David Jones, chief economist at Aubrey G. Lanston & Co. “They have got enough fights on other subjects.”