Bill Clinton is about to get a crack at dismantling one of the major economic legacies of the Reagan-Bush era: The conservative-leaning Federal Reserve Board. All seven of the Fed's current members are Republican appointees. That will change on Jan. 31, when Governor Wayne D. Angell's term expires. Angell is the Fed's most hawkish inflation fighter, and his replacement by a more moderate Democrat could shift the central bank's center of gravity away from aggressive inflation-fighting.
Clinton's top economic advisers have recommended four candidates to replace Angell--all Establishment Democratic economists, BUSINESS WEEK has learned. Senior Administration sources say Alice M. Rivlin, 62, deputy director of the Office of Management & Budget, is the clear top choice--though friends say she may refuse the job. The other prospects: Princeton University international specialist Peter B. Kenen, 61; George L. Perry, 59, of the Brookings Institution; and Van Doorn Ooms, 59, a longtime congressional aide who is now vice-president of the Committee for Economic Development (table). The problem: Aside from Rivlin, all the candidates are white males. If she turns down the job, Clinton or personnel chief Bruce R. Lindsey may order a broader search to come up with another female or minority candidate for the all-white, almost-all-male board.
What kind of governor has the White House been looking for? None of those on the short list has a background in banking, finance, or business. Instead, the Administration seems to favor strong academic credentials that it hopes will give a new governor plenty of clout with other board members. "We're looking for somebody who would maintain the Fed's traditional role of guarding the value of the currency, but in a reasonable fashion," says an official involved in the selection. "We don't want an extremist in either direction--pro-growth or anti-inflation."
A middle-of-the-road candidate should minimize problems on Wall Street, where relaxation of anti-inflation vigilance could rattle the bond markets. Nor would such a person stir controversy on Capitol Hill, where many long for an easier-money policy. The economists on the list are "very mainstream, noncontroversial, and slightly to the left of center," says David M. Jones of Aubrey G. Lanston & Co., a government securities dealer. "Faced with a close call over interest rates, I think all of them would come down on the side of growth over inflation, and with Angell gone, that could make a difference."
FRUSTRATION. All four have a good shot at confirmation. They're well-liked on the Hill: "We see no problems for any of them," says a source on the Senate Banking Committee, which handles confirmation of Fed governors.
The big question now: Will front-runner Rivlin take the position? Friends say she's unhappy in her job at OMB, where she feels she lacks clear authority and influence. But they think that she would be bored at the Fed.
A Rivlin withdrawal would be a problem for the White House. The Fed's record on minority issues is under broad attack. Indeed, House Banking Committee Chairman Henry B. Gonzalez (D-Tex.) on Dec. 1 assailed the Fed system nationwide for being a largely white male bastion. He has a point. The current Fed board consists of six white men and one white woman, and the presidents of all 12 regional Fed banks are white males. Clinton, who has promised a government "that looks like America," could feel pressured to find a woman or minority group member.
But the effort to bring more diversity to the Fed has already frustrated the Clintonites. Other women considered--Council of Economic Advisers Laura D'Andrea Tyson and Assistant Treasury Secretary Alicia H. Munnell--indicated they would rather stay in their Administration posts. The search committee also found little enthusiasm from several African Americans sounded out, including Franklin D. Raines, vice-chairman of the Federal National Mortgage Assn.; William H. Gray III, former House Budget Committee Chairman and current president of the United Negro College Fund; and Ford Foundation President Franklin A. Thomas.
For Clinton, the political balancing act involved in choosing a candidate is only a tune-up for a far more crucial decision he will face in March, 1996, when Chairman Alan Greenspan's second four-year term expires in the middle of what's expected to be a reelection campaign. Faced with a similar choice in 1992, Bush reappointed Greenspan. But he may have rued the day: High interest rates helped put Clinton into the White House. Bush's fate is a reminder that Fed governors--like Supreme Court justices--don't always turn out the way Presidents who appoint them expect.
THE FED'S SHORT LIST ALICE RIVLIN The top choice. The deputy director of the Office of Management & Budget is respected as a solid economist with moderate views. The question: Will she accept? PETER KENEN The runner-up. With a first-rate mind and mainstream views, this Princeton economist knows international monetary policy. GEORGE PERRY Longer odds. This Brookings Institution senior fellow has been around since 1961, when he worked for JFK. But he has been passed over for the Fed before. VAN DOORN OOMS Also longer odds. Another safe Democratic economist who heads research for the business-funded Committee for Economic Development. DATA: BUSINESS WEEK