So Many Seats, So Little Room To ManeuverDean Foust
Every President up for reelection should be so lucky: The economy seems headed toward solid growth through November, 1996. What's more, Bill Clinton has an opportunity in coming months to influence economic policy by filling three of seven seats on the Federal Reserve Board--including the powerful chairmanship. Funny, then, that the President's advisers are far from gleeful about this stroke of good fortune.
The problem: The Republican-controlled Senate is vowing to play hardball over the Fed vacancies. GOP opposition already has torpedoed a potential candidate to replace former Governor John P. LaWare, whose seat has been vacant since March. Now, Republicans are threatening to exercise their veto power when Vice-Chairman Alan S. Blinder's term expires on Jan. 31 and when Chairman Alan Greenspan's term runs out Mar. 2. "They'd better be careful about who they send up, because it won't be a rubber stamp," warns Senate Banking Committee Chairman Alfonse M. D'Amato (R-N.Y.).
FEW ALTERNATIVES. GOP lawmakers are all but demanding that Clinton reappoint Greenspan, a conservative Republican, to a third four-year term. Greenspan is popular on Wall Street, which believes he has delivered the perfect mix of moderate growth and low inflation, and the markets could well react negatively if he gets the boot. "Nominating anyone besides Greenspan is a risk for the Administration," warns Senator Connie Mack (R-Fla.), chairman of the Joint Economic Committee. "The Administration should be careful about politicizing the Fed."
White House aides say Clinton considers Greenspan too hawkish on inflation. Given the choice, the President would prefer someone who shares his philosophy--and would be more beholden to the White House. But Clinton has few alternatives. Treasury Secretary Robert E. Rubin would have the best shot at Senate confirmation, but he does not appear interested. Promoting Blinder would meet with resistance from Wall Street and Hill Republicans, who view him as an inflation dove. If passed over for the top job, Administration officials believe Blinder will return to Princeton University.
Other Clinton economic aides--National Economic Council Director Laura D'Andrea Tyson and Deputy Treasury Secretary Lawrence H. Summers--lack the stature to serve as Fed boss, say Republicans. "If they send us any name other than Greenspan, we just might not act on it," says Senator Robert F. Bennett (R-Utah).
Two outside possibilities for chairman: William J. McDonough, president of the Federal Reserve Bank of New York, and his predecessor, E. Gerald Corrigan. But they don't know Clinton well, and both are inflation hawks. "Neither is better than keeping Greenspan," says a former Fed official.
RATE DEBATE. As for the other seats, finding nominees suitable to the GOP is tough. The White House preemptively yanked its first choice for the open Fed seat, Administration economist Alicia H. Munnell, after Senate Republicans complained that she is too liberal. Choice No.2, American Stock Exchange President Richard F. Syron--former president of the Boston Fed--passed on the job. Current candidates include First Chicago Bank's chief economist, James E. Annable Jr., First Chicago President Leo F. Mullin, and Harvard University economist Benjamin M. Friedman. But both Mullin and Friedman seem to be holding out for the vice-chairman's job.
Presidential aides involved in the search say Greenspan could seal Clinton's support with further rate cuts to help sustain the expansion through the election. The White House wants the Fed to trim the 5.75% federal funds rate to 5.25% by yearend--starting with a quarter-point cut at the Fed's next policy meeting on Sept. 26. "If Greenspan doesn't loosen and the economy doesn't pick up steam soon, all bets are off," says one adviser.
But given Clinton's dearth of options, Greenspan & Co. may call that bluff. With the economy showing signs of recovering from its summer swoon, a number of Fed officials are reluctant to cut rates anytime soon--and then only if the Administration and Congress deliver on their vow to slash the federal deficit.
Some advisers want Clinton simply to name his choices and campaign against the GOP for playing politics with the Fed. But that won't help the economy or the President's reelection chances. Before it's all over, Clinton may just find himself declaring his devotion to Alan Greenspan.