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Fed replacement means high stakes for Bush

Choosing a replacement for Federal Reserve Board Chairman Alan Greenspan is high stakes politics for President George W. Bush.

Facing reporters in the Rose Garden recently, President Bush fielded a question about a high-profile, high-stakes nominee who, if confirmed, would instantly exert great influence over policies familiar and vital to Americans' everyday lives.

No, not one of the eight questions tossed at Bush about Supreme Court pick Harriet Miers. The one about his upcoming nominee to chair the Federal Reserve when Alan Greenspan steps down in January.

The Fed, you ask? Arbiter of arcane monetary policy? As opposed to the Court, with its influence over galvanizing social issues? Purchasing power parity and diminishing marginal utility -- not property rights or doctor-assisted suicide?

Yes, the Fed. It's not just inverted yield curves anymore.

In 18 years at the helm of the nation's central bank, Greenspan has made the job darn near sexy by wonkish Washington standards, and unprecedentedly relevant to its daily course of business.

Energy prices?  A housing bubble? Social Security solvency? The Chairman weighs in on them all for lawmakers whose middle-class and senior citizen constituents (read: swing voters) are more pro-actively engaged with Wall Street than ever, investing college funds and nest eggs in stocks, bonds and real estate.

By turns calming and provocative, Greenspan has become the nation's economic sage, influencing opinions about historically non-Fed issues with the arch of an eyebrow. 

"This is not just a job about monetary policy anymore," says anti-tax activist Grover Norquist. "Whoever Bush picks will be seen as a great economic spokesperson, period."

Non-partisan appearance vital
A Fed chief's credibility depends upon his or her not being perceived as conventionally political or tied to the White House. Responding to that question in the Rose Garden, Bush himself observed, "It's this independence of the Fed that gives people not only here in America, but the world, confidence." Yet the process of replacing the most recognized authority on U.S. economic policy may be unprecedentedly political.

For both the White House and Democrats, the opportunities presented by this vacancy are too good to pass up.

Bush's domestic legacy is uncertain. Shadows hang over his signature laws from his first term: No Child Left Behind is being challenged by some states, and the administration is having to spend $300 million to educate seniors about the Medicare prescription-drug law.

Bold initiatives planned for this first year of his second term are either doomed or in trouble. Bush lacks the public support -- and among his own party, the political will -- to win private accounts for Social Security, and his tax-reform panel is recommending changes to the tax code that are politically risky and -- so far, at least -- uninspiring to conservatives. His ability to pass controversial domestic legislation arguably wanes with every passing week and every lost point of job approval.

Nominations for positions of great influence over U.S. social and economic policy remain a way for Bush to leave his mark. But nonpartisan political analyst Charlie Cook suggests Supreme Court pick Harriet Miers, whose nomination has roiled prominent conservatives in Washington, is not expected to be the ideological force that Antonin Scalia and Clarence Thomas are. Indeed, it's hard to argue, Cook says, that Bush's Roberts-Miers duo will be any more conservative than Rehnquist-O'Connor.

Debates about the stability of the US money supply being a thing of the past, Greenspan's retirement provides Bush with a chance to make a non-ideological, legacy-building appointment. "When we have asked in the past who is integral to the direction on the economy," said former Bush campaign strategist and Matthew Dowd, "Greenspan always ranked in the top three," along with the President and Congress.

The White House may be downplaying its search, but Norquist claims that the lead role being played by Vice President Cheney, confirmed by NBC News, implies "the level of their understanding of how important it is."

The hard road to confirmation
Any opportunity for Bush to build his legacy is a possible soapbox for increasingly emboldened congressional Democrats. This is the partisan ice age of 2005 -- not 1987. In today's climate, even Greenspan might not make it out of committee on a unanimous vote, or win Senate confirmation by 91-2.

Senate leader Harry Reid, along with House campaign committee chair Rahm Emanuel, has criticized Greenspan as a political "hack" or shill for Bush economic policies.

Senate Banking isn't exactly the Judiciary Committee, notes Tom Gallagher, director of the Washington office of International Strategy & Investment, an economic research firm. Ranking member Paul Sarbanes, who's retiring next year, isn't quite as fiery as his Judiciary counterpart Patrick Leahy. Still, the party's ranks on Banking include lead Bush critic and Senate campaign committee chair Charles Schumer; former Wall Streeter Jon Corzine; and a presidential candidate, Evan Bayh.

"If Democrats believe the next Fed chair will also be a prominent spokesperson on non-monetary issues, then they may feel that it's fair game" to focus on the nominee's views on Social Security private accounts, deficits, or tax cuts, says Gene Sperling, national economic advisor to President Clinton. One senior Democratic Senate aide assumes the confirmation hearings "will be an opportunity to talk about Republicans' economic record."

Greenspan wasn’t always Greenspan
Even if Bush doesn't intend for his nominee to become a national commentator, he may not have much choice. Congress and the media are too inured to seeing the Fed chief in that role. "The next guy you pick, you could say well, that's not his job description, who cares what he thinks about Social Security reform," says Norquist. Still, "it would take you several years for someone to lose the credibility that Greenspan has built up."

The pick won't get much of a honeymoon, either. "Greenspan wasn't Greenspan" when he took the helm of the Fed, goes the popular saying. But it would be "tough for someone to attain that" level of credibility "in a short period of time," says Pat Toomey of the Club for Growth, a organization of fiscal conservatives.

But high home heating costs, inflation and increasing minimum payments for credit cards are expected to eat into pocketbooks this winter, and more economists are speculating about a possible recession in 2006. Bush's Fed chair will have to hit the ground running.

The small pool of likely nominees is thoroughly well-credentialed, so qualifications aren't expected to be an issue. But in the post-Michael Brown, post-Miers era, political independence and ties to Bush may be. Candidates Glenn Hubbard and Ben Bernanke are former and current heads of Bush's council of economic advisers.

Sperling says he's been betting on Hubbard, but that the White House "may be forced to think about it more carefully in terms of their recent troubles." Also, "Hubbard would be a popular choice among the president's base but would carry some risk of revisiting all of the fiscal choices made in the president's first term."

National Bureau of Economic Research chief Martin Feldstein "would be seen by many as the most qualified, but he carries some risk as one of the key champions of Social Security privatization."

Fed governors Roger Ferguson and Donald Kohn, on the other hand, are close to Greenspan, so Bush's selection of either would signal continuity -- if that's the message he wants to send. The Economist recently went so far as to endorse Kohn.

"A lot of speculation centers on what the [Miers pick] might suggest about the Fed, so people are looking for the Miers equivalent in the financial word," says Gallagher. "But given the problems Bush has encountered there, he probably won't repeat with another out-of-the-mainstream choice."