Fed Picks May Also Surprise

Bush confounded insiders with his Supreme Court nominee -- and he's considering unconventional choices for the Federal Reserve's board, too

By Rich Miller

As the surprise nomination of John Roberts to the Supreme Court shows, President Bush has a knack for confounding the cognoscenti in Washington with his personnel choices (see BW Online, 7/20/05, "Bush's Supremely Deft Choice").

Throughout much of the afternoon on July 19, the day of the announcement, the chatter in the nation's capital was that Bush was going to tap a woman for the court, with many in the media and on Capitol Hill zeroing in on Judge Edith Brown Clement as the likely candidate. After all, hadn't the President's wife, Laura, said she would like to see a woman fill the post of retiring Supreme Court Justice Sandra Day O'Connor? But in the end, Bush baffled the inside-the-Beltway band of pundits once again -- and presumably risked disappointing Laura -- by naming Roberts.


  Could the same sort of surprise happen at the Federal Reserve? The President will have three slots on the Fed's seven-person board to fill in the next six months. Ben Bernanke has already left the board to take up his new post as chairman of Bush's Council of Economic Advisers (CEA). Edward Gramlich is stepping down at the end of August to return to academia. And of course, there's the big kahuna, Fed Chairman Alan Greenspan, whose term as a member of the board ends next January.

The Beltway buzz has already identified two academics and former Bush Administration officials as leading candidates to replace Bernanke: Richard Clarida of Columbia University and Randall Kroszner of the University of Chicago. Clarida, who served at the Treasury Dept. in Bush's first term, is also working as an economic strategist at the Clinton Group of hedge funds, in addition to his duties at Columbia.

Like Bernanke, Clarida is a monetary-policy expert and believes that a global glut of savings is holding down interest rates worldwide. Kroszner, a former member of Bush's CEA, is a regulatory expert who counts monetarist Milton Friedman and free marketeer F. A. Hayek as his biggest influences.


  But in a sign that Bush may once again stun the so-called insiders, BusinessWeek Online has learned that Administration officials are also looking at two more unconventional candidates for the Bernanke position: author and hedge-fund founder Todd Buchholz and Kevin Warsh of Bush's National Economic Council (NEC), which coordinates economic policy for the President.

Buchholz, co-founder of Enso Capital Management, served in the White House under Bush's father and played an active role in the President's 2004 campaign for a second term. Well versed in public speaking, he's also a prolific author, whose latest book, called Bringing the Jobs Home, focuses on outsourcing.

Warsh is the NEC's point man for contact with the financial-services industry. He has recently sought to raise his public profile by speaking to more industry groups and was mentioned as a candidate for chairman of the Securities & Exchange Commission before Bush tapped Rep. Christopher Cox (R-Calif.) for the job.


  Meanwhile, the White House is stepping up and widening its search for a successor to Greenspan. According to conventional wisdom in the capital, there are three leading candidates for the job: Bernanke, Harvard Professor Martin Feldstein, and Glenn Hubbard, dean of the Columbia Business School and CEA chairman in Bush's first term.

But the fact that the White House is continuing to scour for candidates suggests that once again, Bush may end up surprising those supposedly in the know with his selection. Stay tuned.

Miller is a senior correspondent in BusinessWeek's Washington bureau

Edited by Beth Belton

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