Newspaper article The Evening Standard (London, England)

Changing Face of the Fed May Spoil Policy Harmony; City Comment

Newspaper article The Evening Standard (London, England)

Changing Face of the Fed May Spoil Policy Harmony; City Comment

Article excerpt

Byline: ANTHONY HILTON

NOT SINCE 1935 when the entire US Federal Reserve was restructured has one President had a greater chance to have an impact on American monetary policy.

The retirement of Edward Kelly brings to three the number of seats on the seven-member Fed board of governors that George Bush must quickly fill. And in January he will get another chance when governor Laurence Meyer's term expires.

The governors are the backbone of the policymaking Federal Open Market Committee, which includes five rotating presidents from the Fed's regional banks. The White House's top priority is to add a woman to the all-male Fed Board and the list is thought to include Gay Wisbey, an American living in London who is the Financial Services Authority's director of markets and exchanges, and Diane Swonk, chief economist of St Louis-based Bank One.

The unusually high number of appointments gives Bush an opportunity to affect monetary policy at a crucial time. The Fed is seeking to promote growth without rekindling inflation, a delicate dance that has prompted spreads to widen between short and long-term Treasuries. In America, long-term interest rates have not declined in tandem with the Fed's latest rate moves, partly because credit market investors are concerned about future price pressures.

The President is said to be looking for "pro-growth" and "pragmatic" thinkers, perhaps the sort who would not have waited through all of the second half of last year while the US economy tumbled before finally cutting rates, as the current Fed did.

It is surprising that markets are so calm about the massive change at the Fed, especially as Bush's record in other areas raises doubts about Wall Street's assumption that he will appoint individuals who readily accept chairman Alan Greenspan's view of the world. …

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