Wanted: two Fed officials to sit in Greenspan's shadow

Two chairs were vacant when Federal Reserve policymakers met yesterday in their marble Washington headquarters to set short-term interest rates.

The absence of two Fed governors didn't make much difference to investors and borrowers. They held their breath as usual.

But, in theory at least, President Clinton has an opportunity to influence Fed decisions - and the health of the American and world economies - by filling the seats.

Fed decisions are important, rippling quickly through financial markets.

When the vote is to tighten credit, it can depress bond and stock prices. After several months, the pace of the economy may slow as interest costs for buying new homes and cars rise. The Fed usually gets the blame for a slowdown or recession.

The seven members of the Fed's Board of Governors, along with five of 12 regional presidents of Fed branches (taking turns), each have a vote in meetings that occur every five weeks or so.

But Mr. Clinton apparently has not been in any hurry to fill the jobs. One position, that of former governor Susan Phillips, has been vacant for a year. Vice chairwoman Alice Rivlin quit June 3.

Nor have the financial community and media been clamoring for action.

Why? One explanation may be the extraordinary trust Alan Greenspan has won in Washington and on Wall Street during a decade as Fed chairman.

"It is pretty much Greenspan's show," explains Ian Shephardson, an economist at High Frequency Economics in Valhalla, N.Y. "The other faces around the table are revolving doors, and who cares?"

That's a bit of an exaggeration. But any Fed chairman, by his control of the agenda and his ability to persuade, has more power than his one vote might suggest.

And Greenspan has extra clout arising from his success: The economy is now into the ninth year of an expansion. Inflation is subdued. Prosperity is rising.

"Greenspan has so much credibility," notes Brookings Institution economist Jeffrey Frankel, who until recently was part of a White House group scouting for a replacement for Ms. Phillips.

It's not easy to find high-level candidates for governorships, Mr. Frankel says. They aren't "knocking down the doors."

One reason may be the job has less prestige and power than, say, that of a Supreme Court justice.

Ask most Americans for the name of a Fed policymaker beyond Greenspan, and the response will likely be blank. And while Supreme Court justices vote as they will on issues, Fed policymakers tend to reach a consensus. While some dissent is common, a full revolt against the chairman's view is rare.

Another reason is salary. A governor gets $125,900 a year, the chairman $136,700. That may sound high to most Americans, but it isn't for many bank executives and top economists.

Moreover, some potential candidates may not relish what Frankel calls the "confirmation nightmare." The Senate Banking Committee must approve nominees. Intense partisanship in Washington can mean merciless scrutiny of a candidate's personal life. And some appointments are held up by senators trying to force the administration to take some action completely unrelated to the appointment.

Names of potential nominees are often fed to the press by the administration as a way to uncover possible scandal or political opposition.

At present, for instance, it has been leaked that the leading candidates for Ms. Phillips's slot is Carol Parry of Chase Manhattan Bank. Janet Yellen, current head of Clinton's Council of Economic Advisers, is reported as likely to succeed Mrs. Rivlin.

Another difficulty in selecting governors is that they must be from different regions of the country. And minorities and women are often sought for diversity.

The advantages of being a Fed governor can be long tenure and independence from politics. Terms are 14 years. But many resign early for better-paying jobs.

Most governors are economists. "The job has become professionalized," says Allan Meltzer, an economist at Carnegie-Mellon University, Pittsburgh. Economists can more easily understand technical issues of money supply and finance.

Mr. Meltzer recalls former Fed Chairman William Miller, a successful businessman who presided in the late 1970s. He made "a lot of mistakes," contributing to double-digit inflation.