Yes, that's right. The Fed, the Supreme Court of Wall Street, has five openings on its seven-member board to fill in the next year, thanks to Fed Gov. Edward Kelley's decision to step down before his term ends in 2004 and the slow confirmatory workings of the Clinton years. And W. gets to fill them all.
These are the guys that sit around once every few months with Alan Greenspan — yes, there are others, despite the aura Greenspan sometimes acquires of a Roman emperor with a briefcase — and fiddle with the money supply in an attempt to keep the business cycle from bucking too much. (They also do some other stuff, which nobody cares about.) Greenspan chairs the seven-member Federal Reserve board, and they are joined for meetings by five regional Fed Bank presidents. This 12-person group is the Federal Open Market Committee. Each board member has a 14-year term.
Of course it's the chairman's show, and this Fed is Greenspan's show in spades. But there are always rumblings of dissent, particularly in tense times such as these, and Greenspan still has to take a vote to budge rates. So the other 11 men (and occasionally women) in suits are not without influence.
They kick up fusses. They have to be convinced. Greenspan does have to twist the occasional arm. (If gossip like this turns you on, try Bob Woodward's "Maestro.") In little ways, and at crucial times, they matter. Witness the excited financial-page murmuring that accompanied the release of the minutes of the May 15 meeting, which revealed that Kansas City Fed Bank President Thomas Hoenig, fearing inflation, bucked Big Green for the first time in two years and voted for a quarter-point cut. (The regional presidents, not seeing Greenspan as often, do tend to be a bit more cantankerous than the Fed board members.)
Bush's first two appointments are in the pipeline. Tennessee banker Susan Bies was nominated last month, and Mark Olson, former staff director of the Senate Banking Committee and former president of the American Bankers Association, got his nod Tuesday. Both bankers.
Granted, as a litmus test being a banker tapped for the Fed doesn't quite compare to, say, being pro-choice or anti-affirmative action when you're marked for the Supreme Court. But the world of monetary policy does have its divides, and being a banker puts you on one side of one of them.
Because there's nothing bankers love like low short-term interest rates. The short-term rate is the one bankers use to peg what they pay depositors — the lower the better. Longer-term rates, like the ones on 10-year bonds, are the ones they use to charge borrowers. The lower Greenspan goes, the bigger the spread between the two — all else being equal — and the more the banks profit.
So a banker comes to the Fed with an instinctive belief in lowering interest rates, and to the extent that predilection survives the appointee's new responsibilities as a Fed member — namely, preventing inflation that could be fueled by too-low rates — that banker could influence the chairman toward monetary easing. (His recession-fighting of late notwithstanding, Greenspan is usually a cautious type very leery of anything inflationary.)
And that's what a White House loves to hear. Every White House has done its share of jawboning the Fed to lower rates, economic growth being very good politics. And few Fed chairman listen, as the elder Bush so painfully learned in 1991 when Greenspan's caution in lowering ushered in the recession that ushered Bush out. So Bush the younger, who probably still hears about that around the barbecue pit in Kennebunkport, appears to be insuring himself as best he can against a similar fate.
Olson and Bies, if confirmed, will be wading in the middle of a nervous time, a time when the Fed hardly knows whether six straight interest-rate cuts have worked at all — or whether, six or nine months from now, they'll have worked too well. They'll probably spend a few years just doing what Greenspan says, and we'll probably get out of this lesson in bubble economics with our boom intact.
The really big decision won't come until June 20, 2004, when another Fed member's term runs out — Greenspan's. Father Greenback will be 77 then, and few expect him to try to go another four years after steering the money supply (rather successfully) through a recession, a boom, a global currency crisis and whatever it is we're in now. Who's up next? Vice Chairman Roger Ferguson is brilliant, qualified, and Bush just renominated him. But the Fed Chairmanship is a political appointment, for friends and allies only, and Ferguson was Clinton's pick.
By then, the economy should be rolling again and the bulk of the Bush tax cuts will just be starting to kick in. No matter how Bush's re-election prospects look from five months out, he'll want a Fed chairman with a kind eye for what W. put in place. Someone who sees the world like a true Republican. Someone with experience on the Fed and in a White House, able to see monetary policy from both the central bank's and the president's viewpoint.
Which is why the early, early favorite is Larry Lindsey, the White House's chief economic adviser and a former Fed governor.
Unless Scalia wants it.