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After Greenspan, Who?

By Kevin Harris As Alan Greenspan settles into his fifth term as Federal Reserve Chairman, chances are pretty good it's also his last. And that means one question will get lots of attention in the months to come: Who could replace him when his new four-year term is up? The post is a Presidential appointment, and whoever occupies the White House when Greenspan leaves will have his pick of candidates from within the Fed as well as from prominent economists outside the central bank.

Of course, Greenspan appears to have as firm a grasp on the policy rudder now as he always has. He's steering the U.S. economy back to a steady growth course. The disinflationary threat appears to be receding. And interest rates are heading back to neutral from the accommodative status of the past couple of years (see BW Online, 6/28/04, "Higher Rates: How Far, How Fast?"). But 78-year-old Chairman Greenspan may not want to wait until the last moment before handing off to a successor.

POLICY VS. ACADEMIA. Without veering off into hero worship, it's worth noting how rare it is for a policymaker to be as well-regarded as Greenspan has been for most of his tenure. And he has been in office for so long that many investors may not even remember who last held the post. Hence the challenge: Name one person who could take his place.

We at Informa Global Markets won't name one -- we'll point to several. Key leadership positions at the Fed have been turning over at a pretty good clip lately, and a clear pattern has emerged of either filling slots from within or hiring people who have solid knowledge of Fed operations.

For one thing, Greenspan -- or someone at the Fed -- is packing the central bank with people who are monetary-policy experts as opposed to academics. Two of the four recent appointments, Governor Donald Kohn and Richmond Fed President-designate Jeffrey Lacker, have been Fed research economists. They, along with Governor Ben Bernanke, the Fed's point man on deflation, and St. Louis Fed President William Poole (for a Q&A with Poole, see "'My Goal for Inflation Is Zero'"), among other veteran hands, could carry on Greenspan's vaunted analytic endeavor after the chairman leaves office.

A JAPAN PRO. Another relatively recent appointment, San Francisco Fed President Janet Yellen, who served as a Fed staff economist in the late 1970s, had a term as a governor in the 1990s. She served on the Council of Economic Advisers under President Clinton, and she has extensive academic credentials. Yellen is a strong addition to the Fed's bench. It won't much matter whether she has immediate voting status on policy because she'll wield considerable influence in the short term.

Then there's Timothy Geithner, who had no Fed experience until becoming the New York Fed president. However, he had held various Assistant and Deputy Assistant Treasury Secretary posts, working on monetary issues and international affairs. Not only is he well known internationally but he conducts his dealings with Japan's Finance Ministry and the Bank of Japan in fluent Japanese. He knows the International Monetary Fund quite well, and he has spent time at high-profile consultancy Kissinger & Associates.

While Geithner will clearly be no slouch when it comes to monetary policy, he looks more like the choice to take Greenspan's slot on the "committee to save the world" (the unofficial rapid-response team of top Treasury and Federal Reserve officials called upon in times of crisis in global financial markets) should the committee ever need to reconstitute itself.

At Informa, we're not in a position to say a conscious effort is under way to assure that the Fed has the strongest team in memory when Greenspan retires. But regardless of whether that's indeed the plan, it looks like a deep bench has been assembled. And that may serve to assure Wall Street -- and financial markets around the globe -- that the central bank will be in good hands when Greenspan departs. Harris is chief economist for Informa Global Markets

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