All Hail Greenspan!

How the Fed boss has amassed power on the eve of a third term

From his introverted personality to his solicitous treatment of colleagues, Federal Reserve Chairman Alan Greenspan doesn't fit the image of a dictator. He lacks the intimidating presence of his 6-foot-7 predecessor, Paul A. Volcker, and eschews the professorial arrogance of 1970s Fed boss Arthur F. Burns.

Yet Greenspan has emerged as one of the most powerful chairmen in the 82-year history of the nation's central bank. His deft maneuvering within the Fed has minimized strong challenges to his monetary decisions. His solid stewardship of the economy has won raves from Wall Street. And his good political fortune--the GOP's capture of Congress--has all but guaranteed that President Clinton will renominate him for a rare third term on Mar. 2. "He is extremely powerful," concedes an Administration official. "During a third term there will be no discipline. He won't have to kowtow to anyone."

Already, dissent has all but vanished at meetings of the 12-member Federal Open Market Committee, which sets short-term interest rates. Formal votes of opposition, which averaged 10 a year during his first term (1987-1991), fell to five in 1994 and just two in 1995. Instead, says a colleague, Greenspan "walks into every FOMC meeting with eight or nine votes in his pocket." By contrast, Volcker faced an insurrection during his second term, with a majority of members forcing him to accede to their demand for a discount-rate cut.

"ENLIGHTENED DESPOT." Greenspan has so successfully forged consensus in part because strong-willed voices at the central bank have largely disappeared. Longtime Fed watchers say the current crop of 12 regional bank presidents is less steeped in economics and monetary policy than their predecessors. Having come up through the check-clearing ranks, the presidents are intimidated by Greenspan's knowledge and experience. "There are very few global thinkers among the presidents," says one Fed official.

Indeed, the 69-year-old Fed chief seems so confident that he won't be challenged that he has stopped calling some regional bank presidents before key FOMC meetings to determine their views. The presidents don't seem bothered by the change, since Greenspan is careful to solicit their opinions at meetings. Moreover, he has won their support by agreeing to set interest rates during FOMC meetings rather than exercising his prerogative to act between sessions--as has been a past practice. "Over time, everyone has become more confident in the job he has done," says longtime Philadelphia Fed President Edward C. Boehne.

Greenspan has few sharp rivals on the Fed's seven-member board of governors as well. A vocal critic on the right, inflation hawk Wayne D. Angell, left the board in 1994. And Greenspan's most powerful challenger on the left, Vice-Chairman Alan S. Blinder, in February will return to Princeton University. Board differences are also discouraged by a staff that has grown in influence. Fed governors grumble that they can't gain access to critical staff research going directly to Greenspan and complain that he and his staffers consulted with them on the 1995 Mexican rescue plan only at the last minute. Moreover, he holds total sway over bank regulatory issues. Still, the governors shrug off the slights: "He may be a despot, but he's an enlightened despot," jokes one senior Fed official.

If Clinton had free rein, say White House aides, he would dump Greenspan in favor of a Fed chief concerned less with cutting inflation and more with economic growth. But with Senate Republicans insisting on Greenspan's reappointment, Clinton is considering a strong counterbalancing personality for vice-chairman: Wall Street financier Felix G. Rohatyn, a liberal Democrat and pro-growth champion. But Rohatyn may not make it past hostile GOP senators. Even if Greenspan and a pro-growth candidate were presented as a package, "I'd have real trouble signing off on a deal like that," says Senator Connie Mack (R-Fla.), chair of the Joint Economic Committee.

And so Greenspan's firm grip could remain unchallenged. Certainly, much of that power ultimately derives from the placid state of the economy: Should his quest to virtually eliminate inflation trigger a recession, Greenspan surely will find renewed challenges to his authority. Until that happens, though, the Fed's "enlightened despot" can call virtually any shot he likes.

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