Fed Nominee Kohn Brings Greenspan Ties

Donald Kohn, nominated Thursday by the White House to be vice chairman of the Federal Reserve, comes to the job with the weight of the Alan Greenspan era behind him and a solid reputation in financial markets.

Kohn, a Fed governor since August 2002, has spent his whole career within the Federal Reserve System and is widely respected at central banks around the globe for his economic expertise.

He speaks rarely compared with many of his colleagues, but his words carry heft among Wall Street investors.

According to a survey by Macroeconomic Advisers, Kohn ranked third last year among Federal Reserve officials whose words move markets, behind former Chairman Greenspan and St. Louis Fed President William Poole.

“He has a great deal of stature within the system and an enormous amount of practical experience that complements Chairman [Ben S.] Bernanke’s academic credentials,” said former Fed research director Michael Prell.

Kohn, who said he was deeply honored by being selected for the No. 2 post, approaches monetary policy from a risk-management perspective akin to that of Greenspan, with whom he is closely identified.

Like Greenspan, who stepped down in January, Kohn has expressed skepticism that moving to a publicly stated target for inflation would improve the Fed’s performance.

This may put him at odds with Greenspan’s successor, Bernanke, who has urged that a numerical inflation objective be identified.

Still, Bernanke has said he will move forward on this only if he can build a consensus among Fed officials.

Although Kohn has been critical of inflation targets, saying they can hamper central bankers’ flexibility, some analysts think that his antipathy may not run as deep as that of former Fed Vice Chairman Roger Ferguson.

Bernanke welcomed the news of the nomination, which requires Senate approval.

“Gov. Kohn has made crucial contributions to the work of the Federal Reserve in his more than 30 years of service,” Bernanke said in a statement.

Kohn is likely to be a popular choice among Fed officials, who are said to know him well and respect him.

His term as a Fed governor is set to end Jan. 31, 2016. If approved, his renewable tenure as vice chairman would end in four years.

The vice chairman has no mandated duties other than leading the Fed in the chairman’s absence. However, Ferguson, who stepped down from his post at the end of April, took a lead role on global issues, including the negotiation of bank capital rules.

Kohn’s knowledge of the Fed’s inner workings is extensive. Before being named to the central bank’s board by Bush, he served as the top Fed staffer on monetary policy issues, most recently as advisor to the board for monetary policy and, before that, head of the Fed’s monetary affairs division.

As director of that unit, Kohn was charged with assembling and presenting the “blue book” analyzing policy options for Fed meetings.

Kohn was a vocal advocate of the gradualist approach to interest rate rises employed by the Fed during the monetary tightening cycle that kicked off in June 2004.

He also backed the adoption of forward-looking language in the central bank’s statements and has said greater transparency may have led to less uncertainty in the financial markets.