Key Finance Posts Will Shape Economic Policy
THE lack of a clear congressional majority will not stop the incoming president making appointments to key financial and regulatory bodies that can determine the pace and direction of economic policy.
Two of the seven seats on the board of the Federal Reserve are vacant and vice-chairman Roger Ferguson's term has expired, but he has been allowed to stay on pending the confirmation of a new nominee. Within 18 months a fourth seat, currently held by governor Laurence Meyer, will become vacant.
Brian Wesbury, chief economist of investment bank Griffin, Kubik, Stephens & Thom- son, said: "Over time, the presidential appointments to these vacant positions could result in a dramatic change in monetary policy."
Wesbury, a rare critic of Fed chairman Alan Greenspan, believes the Republican appointees will lead to a transition from the board of governors' traditional Keynesian approach to the monetarist perspective championed by Robert Mundell, president Ronald Reagan's economic guru and last year's Nobel Prize winner.
Greenspan, a Republican and Reagan appointee, was criticised by former president George Bush for having contributed to his loss to Bill Clinton by failing to reduce interest rates.
Susan Phillips, a member of the board of governors in the presidency of Bush Snr, said: "Fed-bashing was the name of the game. But if the Fed is backed into a corner, it has the reverse effect of making it take a hard line."
Bush is expected to maintain the constructive working relationship with the Fed that has been carefully nurtured since 1993 by the Clinton economic team.
According to analysts, George W Bush has indicated he understands the importance of maintaining a good relationship with the Federal Reserve by not publicly criticising it or urging interest-rate reduction.
A report by Goldman Sachs concludes: "This should not be difficult, because many of Bush's proposals are apt to find favour with Greenspan."
But one potential ground for disagreement could arise over plans to use the government's budget surplus to cut taxes rather than Greenspan's preferred policy to reduce government debt. …