Voting for continuity in monetary policy, President Clinton on Thursday nominated Alan Greenspan to a third term as chairman of the Federal Reserve Board and chose to fill two other central bank vacancies with a moderate White House budget official and a centrist economic consultant.
The nominations signaled White House acceptance of an eight-year Greenspan stewardship of the Fed that has emphasized price stability over economic growth. Greenspan “has inspired confidence, and for good reason,” Clinton said in an Oval Office announcement.
In addition to Greenspan, Clinton nominated Alice Rivlin, the White House budget director, who is more conservative on fiscal policy than some of her administration colleagues, to serve as vice chairman. He named Laurence H. Meyer, an economic forecaster from St. Louis, to fill the board’s other vacancy.
Senate confirmation of Greenspan, 69, who was first appointed in 1987 by President Reagan, appeared certain and approval of the other two seemed highly likely. Sen. Alfonse M. D’Amato (R-N.Y.), chairman of the Senate Banking, Housing and Urban Affairs Committee, said that he sees “no impediments” to quick confirmation of the three.
Clinton aides said that soundings they had taken on Rivlin and Meyer also suggested confirmation.
The seven-member Federal Reserve Board sets the nation’s monetary policy, influencing the level of interest rates and availability of money through purchases and sales of bonds. Under Greenspan’s tenure, it has held a strengthening grip on inflation, much to the satisfaction of Wall Street.
Only one week ago, Clinton appeared to show some dissatisfaction with the Fed’s growth policy when--in his first open criticism of the bank as president--he called for a more vigorous debate about the best rate of sustainable growth. He declared that there could be wide social benefits if the growth rate were coaxed to 2.7% or 2.8% per year, for example, from the 2.5% that it has averaged for 25 years.
And Clinton had been publicly debating appointment of investment banker Felix Rohatyn, an outspoken advocate of faster growth, before Senate Republicans made clear that they would reject that choice.
Rivlin and Meyer may broaden the perspective of the Fed with new views, some fellow economists said. White House officials asserted that both are independent-minded practitioners who may invigorate the debate on economic prescriptions.
Yet neither is likely to represent a major challenge to Greenspan’s course.
Rivlin gained a reputation as a fiscal conservative when she served as the first director of the Congressional Budget Office from 1975 to 1983. She became deputy director of the Office of Management and Budget in January 1993 and stepped to the top job at the agency in October 1994.
Inside the Clinton administration, she retained that reputation, fighting behind the scenes for tough anti-deficit measures--and sometimes pushing for more aggressive moves than Clinton himself wanted.
Rivlin agreed only reluctantly to change jobs. She argued that she would be more valuable in her current role of trying to bring the federal budget under control and assented only when Clinton agreed that she could stay long enough to finish much of this year’s budget cycle, officials said. No replacement for her has been named.
Meyer, a professor at Washington University in St. Louis, is a mainstream economic forecaster who has attracted a high-level roster of clients, including the Fed, the White House Council of Economic Advisers and the Labor Department. The CBO recently invited him to sit in with a group of advisors in discussing its latest budget forecast.
“I don’t think either one of them would go out and start printing up dollars willy-nilly,” said Daniel J. Mitchell, an economist at the Heritage Foundation, a conservative think tank.
Rivlin will fill the seat formerly held by Alan Blinder, who has returned to Princeton University. Her appointment is for a full 14-year term. Meyer fills a seat vacated by banker John Leware, whose term has six years remaining. The Fed chairman serves for four years.
Both Rivlin and Meyer are Democrats. Greenspan is a conservative Republican--as Clinton noted in his remarks Thursday.
The selections had been under review since last summer. Facing an election year and a liberal wing of the Democratic Party that was not altogether happy with Greenspan, the White House toyed with the idea of combining the inflation-conscious chairman with a more liberal vice chairman.
Other possibilities included, in addition to Rohatyn, Peter Kennan, an international economist at Princeton; Robert Shapiro, a Clinton economic advisor in 1992; and Eugene Ludwig, former comptroller of the currency.
But it has been clear for months that Greenspan probably would remain as chairman, White House officials said. “The presumption was from the beginning that it would be difficult to make a change there,” one senior official said.
“He is a known quantity and an excellent quantity,” said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis. “He has the confidence not only of the American financial markets but of the international financial markets.”
Meyer’s model for forecasting the economy has been used in places as disparate as the Heritage Foundation and the Labor Department. His findings tend to be consistent with those of the economics establishment.
For example, the most recent Blue Chip consensus prediction among private forecasters is for the economy to expand at a 2% rate this year. Meyer’s forecast is also 2%.
Some believe, however, that Meyer would add an element of depth to the board by elevating the importance of growth--while still maintaining the fight against inflation.
“There are many at the Fed who believe their primary mission is essentially to drive inflation to zero,” said Ross C. DeVol, an economist with the WEFA Group in suburban Philadelphia. “I would view Larry as being more pragmatic in that regard.”
By contrast, few question Greenspan’s determination to squeeze inflation, a clear priority since he was appointed.
As the recovery gradually gained momentum in 1993 and 1994, Greenspan sought a “soft landing” for the economy, characterized by modest growth without inflation. The quest has earned him kudos and barbs, as he has sought to use interest rates to restrain the pace of growth.
Starting in February 1994, Greenspan’s Fed imposed a series of rate hikes that eventually pushed up short-term rates by three percentage points in a bid to squeeze out incipient inflation.
While that effort succeeded at keeping inflation around 3% or less, it also appears to have weakened the economy, which has slowed markedly in recent months. As a result, the Fed has been forced to reverse course and begin a series of rate cuts.
“I think the jury’s still out” on whether Greenspan has engineered a soft landing, said Gary Schlossberg, an economist at Wells Fargo Bank in San Francisco. “The conventional wisdom would be that he has achieved it or is very close to achieving it.”
Word that Greenspan will be reappointed to another term “is good news for the financial markets. I think they have a lot of respect for Greenspan,” Schlossberg added. Indeed, the Dow Jones industrial average surged 92.490 points Thursday to a record close of 5,608.46.