Bush to Nominate Two to Fed Board
By Arshad Mohammed
Wednesday May 8, 5:02 pm Eastern Time
WASHINGTON (Reuters) - President Bush said on Wednesday he intends to nominate Donald Kohn and Ben Bernanke to the Federal Reserve Board, choosing two monetary economists whose expertise may strengthen the U.S. central bank whenever Fed Chairman Alan Greenspan chooses to step down.
Bush said he planned to nominate Kohn, the Fed's top staff official and one of Greenspan's most trusted lieutenants, for a 14-year term ending Jan. 31, 2016, and Bernanke, who chairs the Princeton University economics department, to serve out a term that expires on Jan. 31, 2004.
If confirmed by the Senate, Bernanke, a leading academic authority on monetary policy, and Kohn, who has spent his entire career within the Federal Reserve System, may fill a gap left by Laurence Meyer, whose January departure from the board took away a prize-winning economic forecaster.
The White House issued a statement announcing Bush's choices to fill the two vacancies on the seven-member Fed board, which forms the core of the Federal Open Market Committee that sets U.S. interest rates and thus wields huge influence over the U.S. economy and world financial markets.
Wall Street economists and former Fed governors praised the choices, saying they will provide continuity should Greenspan choose to leave when his current four-year term as chairman ends in June 2004, when he will be 78.
Greenspan, who is now serving a fourth term as Fed chairman, is in good health and there is no indication he plans to leave the central bank anytime soon but when the revered Fed chief does go, his shoes will clearly be tough to fill.
"I'm delighted and thrilled at these picks," said Neal Soss, the chief economist at Credit Suisse First Boston who has worked at the Fed, is a Princeton alumni and knows both men, rating their choices an "A-plus."
Soss said Kohn's seasoning as a Fed insider will be an asset to the board and that the academic dimension offered by Bernanke was important in making the delicate judgements about interest-rate policy.
GREENSPAN'S FINE HAND?
Bernanke, 48, is a Republican who like Greenspan has a strong free-market bent on economics but disagrees with the Fed chairman on inflation targeting, which he favors as a tool for monetary policy. Despite this stance, Bernanke's monetary views are expected to be well within the central bank's mainstream.
Reached by telephone after the announcement, Bernanke said he was "delighted" by the president's decision to nominate him. "I hope to bring the benefit of my own experience in macroeconomics and learn a lot from my fellow board members."
Kohn, 59, the most senior Fed staff member on monetary policy issues, also holds the title of secretary to the interest-rate setting FOMC and is widely seen as one of Greenspan's most trusted lieutenants.
In one sign of his influence, Kohn presents members of the FOMC with the "Blue Book," a document outlining the pros and cons of different interest rate moves.
Several economists said they detected Greenspan's fine hand in the choice of Kohn, although they stressed this did not take anything away from the Fed staffer, who was widely praised as a first-rate economist with a deep knowledge of monetary policy.
"There is no doubt that Greenspan had a hand in Kohn's selection," said David Hale, chief economist at Zurich Financial Services in Chicago, who noted that Greenspan has ties to key players in the administration, such as Vice President Dick Cheney, who is a close friend of the Fed chief.
"I was quite pleasantly surprised that this administration would make these two appointments," said Adam Posen, who worked at the New York Fed in the 1990s. "These are so clearly meritocratic and so clearly nonpartisan."
TWO OPEN SEATS
With the new selections, Bush has picked four people to serve on the seven-member Fed board.
The two board seats destined for Bernanke and Kohn will bring the panel up to full strength for the first time in nearly four years -- barring a few weeks last December when Fed Governor Edward Kelley and Meyer had not yet left and Susan Bies and Mark Olson had just arrived.
Bernanke, who has co-authored a book and several articles on the subject, favors inflation targeting as a way to improve central bank transparency. Greenspan, however, has cited problems in accurately measuring the inflation rate.
The Princeton professor did his undergraduate work at Harvard and got his doctoral degree from the Massachusetts Institute of Technology while Kohn studied economics at the College of Wooster in Ohio and earned his doctoral degree at the University of Michigan.
Bernanke, who is married with two children, grew up in South Carolina. Kohn, married with two grown children, is from Cheltenham Township, a suburb of Philadelphia. He does not have a party affiliation. (Additional reporting by Caren Bohan) |
