Bush Considers Kohn, Bernanke for Federal Reserve Board

President Bush is narrowing his choices for filling two vacancies on the powerful Federal Reserve Board, Washington sources said Wednesday.

Bush is seriously considering Donald Kohn, the Fed board’s advisor on monetary policy and one of Fed Chairman Alan Greenspan’s most trusted lieutenants, to fill one vacancy on the seven-member Fed board, a senior Bush administration official said.

The official also said the president’s meeting Wednesday with Princeton economist Ben Bernanke suggested that Bush had all but settled on the widely respected authority on monetary policy for the second vacant seat.

The Fed governors, along with a rotating list of regional Fed bank presidents, set U.S. monetary policy, in part by adjusting key short-term interest rates. They also can influence stock and bond markets with their comments on the health of the nation’s economy. Bernanke confirmed that he met with Bush. Kohn declined to comment, as did the White House.

Others who have been looked at by the administration for the seats include economists Bill Dudley at Goldman, Sachs & Co. and Richard Berner at Morgan Stanley. Several other academic and Wall Street economists have been eyed as well.

Bush already has made two Fed board appointments. Last year, he selected Susan Bies and Mark Olson, both of whom have banking backgrounds.

Bernanke, 48, part of the elite panel at the National Bureau of Economic Research that dates U.S. business cycles and who has chaired Princeton’s economics department since 1996, surfaced as a potential Fed board candidate a few months ago.

In his writings, he has advocated inflation targeting, a tool used by the European Central Bank and other major central banks. But Greenspan has said such a target could represent “an unhelpful and false precision.”

As for Kohn, “I think [he] would be an excellent choice,” said former Fed Gov. Lyle E. Gramley, who said he had no knowledge of whether Kohn was under consideration.

Gramley described Kohn as extraordinarily bright and added that he commands great respect from Greenspan.

One empty seat on the Fed board was vacated by Laurence Meyer, whose term expired in January. The other was held by Edward Kelley, who stepped down in December.