WSJ.com - Search for Fed Chairman Widens

Greg Ip is overly polite:

WSJ.com - Search for Fed Chairman Widens: By GREG IP: The White House search for a successor to Federal Reserve Chairman Alan Greenspan... goes beyond the three candidates mentioned most often, said people familiar with matter. For months, the three candidates cited most frequently have been economists Martin Feldstein of Harvard University, Glenn Hubbard of Columbia University and Ben Bernanke, chairman of President Bush's Council of Economic Advisers. But the White House also is looking at other candidates, including former Bush adviser Lawrence Lindsey....

Vice President Dick Cheney and National Economic Council Director Allan Hubbard are leading the search, one former administration official said.... Fed governor Donald Kohn, a former senior staffer at the central bank and a political independent, remains a favorite of Fed staff as a potential Greenspan successor. But Mr. Bush is unlikely to nominate anyone who isn't a Republican.

One reason the White House is looking beyond the three most prominent candidates is that it is "very concerned that whoever they get not only has understanding of monetary policy, but experience working with financial markets and the ability to use business and market contacts to get ahead of the statistical economic data," said one former administration official...

Larry Lindsey has powerful strengths (and some weaknesses) as a potential Fed candidate. But his strengths do not include "working with financial markets" and the "ability to use business and market contacts to get ahead of the statistical economic data."

The message that I get from Greg Ip's article is that the Fed Chair search is yet another Cheney-led Bush initiative where they haven't a clue as to what they should be doing.

Comments

[sm]

"The message that I get from Greg Ip's article is that the Fed Chair search is yet another Cheney-led Bush initiative where they haven't a clue as to what they should be doing."

Except -- they will dismantle any barriers to their own wills, by finding someone who will do what he's told.

[Derelict]

I think one of the things that is making the search most difficult is that CheneyBush has to find someone with an impeccable reputation and rock-solid credentials so that what that person says and does will carry weight and authority. However, that same person MUST be willing to sacrifice their reputation and throw away their credentials to kowtow to the Republican Party line--whatever that line might be at the moment. (I.e, Republican president = deficits good; Democratic president = deficits and/or surplus bad).

Finding such a person is quite difficult. There are very, very few people who, having spent a lifetime building their reputations and credentials, are willing to throw away both for the paltry salary that being Fed chairman brings. The only hope is to have DeLay/Frist sponsor legislation specifically allowing the fed chairman to accept massive kickbacks and bribes, thus making the position attractive to the appropriate whore.

[Joe]

The last time Cheney led a search committee, it was to find the best candidate to be Bush's vice-president. Amazingly, it turned out to be himself. Could it happen again?

[howard]

my bet is that it isn't the "inflation targeting" of the "Fed" that markets have rspected; it's the "inflation targeting" of "Alan Greenspan." For better or worse (mostly better in terms of his day job, mostly worse in terms of everything else, like his role in the great social security swindle), market participants credit greenspan with tremendous insight, knowledge, and skill. Who can possibly step into his job without the market's wondering if he/she is going to be as good?

And what do markets do when they worry? They put a bigger risk discount into their analysis.

And what happens with a bigger risk discount on monetary policy? Long rates go up further than greenspan (and yellen) want them to.

Which is not what the cheney administration wants for the 2006 congressional elections.

which is a long-winded way of saying that my bet is that they ask greenspan to stay through 2006.

[kharris]

Howard,

Maybe through May of 2006, but probably not beyond. That gives Greenspan time to get to the end of the rate cycle, even if the end is 5.5%. Once the end of the cycle is reached, there is a window of time during which the new guy/girl is not likely to screw up (though the new girl/guy may be called upon to undo a Greenspan screw-up).

The search is being broadened? It usually is, at least under Bush, once real attention is paid to the search. The difficulties outlined here for finding a credible candidate become palpable, the flaws of the already mentioned candidates (Feldstein criticized Republican fiscal policy once upon a time) come under fresh scrutiny, and the competition among interests to get their kid picked intensifies, all of which means the search must broaden once the search is actually underway.

[howard]

kharris, you may be right (i wish i could recall exactly when greenspan's term ends), although extending just through may sounds a little funky unless it ties to something "legitimate."

But it's not so much my expectation that the new guy/gal will screw up, it's my expectation that market participants will fear that the new guy/gal will screw up....

[CalDem]

Correct me if I'm wrong but isn't Lawrence Lindsey a total
political hack who has gotten ahead by towing the Republican line? Does he have serious accomplishments in economics?

[Jim Gardner]

The question is whether Bush cares about the Fed more than his own ego. Does anyone think he does? So why should we expect to see a candidate with any sort of reputation or integrity?

The White House wants loyalty; it's never shown any interest in ability. If John Bolton has a counterpart in the financial world, that's whose name I'd pick in the pool.

[anne]

I would imagine Republicans would like to have Greenspan about through the coming election. Short of that, I imagine Bernanke will be nominated. I would however really not care to have Fed Funds increases to 5%.

[janon]

Yes, Howard, Lindsey manages to combine being a total political hack, a mediocre (at best) economist, and a brownnoser with having a tin ear for the nuances of politics. Ironically, it's the tin ear that endears him to people like Brad, because what got him fired from the White House was apparently his statement that the Iraq war could cost $200 billion.

[paul]

Oh, dear. So someone new, and quite possibly a hack without the confidence of anyone except George and Dick, will quite possibly be running the Fed when the post-2001 policies hit the fan.

Somebody correct my memory here -- governors serve their terms until they expire or they get bored; is the same true of the chairman, or does he serve at the pleasure of the president? If it's by term, there's at least a ray of hope that the new incumbent won't feel entirely beholden to his bosses.

[Josh Yelon]

Waiting... waiting for the appointment of Ahmed Chalabi.

[sm]

One difference with this appointment might be...that there are serious financial players who will want somebody good at the Fed. Not too many people cared about Bolton at the UN -- though when stories came out a fair number got alarmed. But hackery at the Fed?

I doubt not the hackery will be first priority for the WH. However, they got a bit burned with Bolton, and this may be eclipsed by a dumb appointment for the Fed.

I wait to be corrected by people who follow such things.

[hans Suter]

What about "Tonino"?

[kharris]

Take heart. Look at who else is voting, or in line to vote, on the Board. The Chairman may simply become less important after Greenspan is gone. If the Chairman turns out to be a hack, the rest of the voters aren't going to just roll over.

[anne]

Evaluating a new Fed chair we need to decide whether Alan Greenspan has served well and why that might have been. Greenspan has for me long had a fine sense of the near term direction of the economy and been flexible about responding to what was taken for the direction. The strong sense I have is that a coming chair will take a more mechnical approach to setting monetary policy, adopting a narrow inflation range as a guide. Then, I would imagine there are a range of candidates who would be similar. I prefer flexibility, but would be content with Ben Bernanke.

[me]

"One difference with this appointment might be...that there are serious financial players who will want somebody good at the Fed."

sm, the idiots are runnig the asylum, there are no grownups of the republican persuasion.

[sm]

They don't even care about their own financial holdings?

[Big Al]

I'm not available.

[elliottg]

I don't get it. How does it make any sense for Bernanke to head the CEA without the promise of the chairmanship?

[Jim Brady]

Forgive my ignorance (I'm not American) but why is the administration appointing the Fed Chairman? It is not supposed to be a political post. It isn't anywhere else. Everywhere else (well almost everywhere) the Central Bank is an independent Statuatory body with a charter to maintain price cum economic stability.

[Jim Brady]

I forgot to include my main point. Can't somebody on the Democratic side make the point loudly and clearly that being too close to INDIVIDUAL businesses is a problem for capitalism as much as being antagonistic to business. Market Capitalism only works for the general good so long as it is allowed to balance competing individual interests. When it concentrates on single individual interests it is corrupted. We need an eloquant speaker (Edwards maybe) to pick up this point and chant it over and over. This simple point is simply not discussed.

[Auros]

Horrifying thought: The last time Dick Cheney led a search to fill a major position, he ended up picking himself. *g*

[tjallen]

Anne said: "I would however really not care to have Fed Funds increases to 5%."

Of course, don't you think that is where we are headed - 5% or 5.5% at least? I thought that is where we were headed if Greenspan stayed in charge; so maybe having a new head will change things. I see them asking the candidates, "Can't you stop this horrible interest rate spiral?"

But consider two things: 1. Doesn't current theory (one of them, anyway) put a "Natural" interest rate at 4 to 4.5%; and
2. The rate setter will probably overshoot, raising and raising the rate until "empirical conditions" indicate the natural rate is reached. These empirical conditions will be - the economy slows. For Greenspan, the ecomony's slowdown would have been indicated by various quirky stats he followed, what will be the new person's guideposts?

But I think these two points together put us at 5% or higher. The question becomes not, what is the natural rate, but what is the rate that slows the economy (or what rate will turn this quirky leading indicator)?