Greenspan Expected to Keep Fed Post

President Bush is virtually certain to reappoint Alan Greenspan as chairman of the Federal Reserve Board, despite the barrage of criticism that the Administration has leveled at the central bank for not lowering interest rates faster during the recession, knowledgeable officials said Friday.

Bush’s announcement of Greenspan’s reappointment may come within the next two weeks, sources said.

A small group of top Administration policy-makers--White House Chief of Staff John H. Sununu, Treasury Secretary Nicholas F. Brady, Office of Management and Budget Director Richard G. Darman, and presidential economic adviser Michael Boskin--met privately Friday, to discuss the issue for the first time.

Sources stressed that no decision was made at the meeting, and the senior officials have not met with Bush to discuss the matter. But insiders said those four officials are almost certain to formally recommend to Bush that he reappoint Greenspan for another four-year term.

The 65-year-old Fed chairman’s current term expires Aug. 11, and many officials in the Administration feel that a decision needs to be made soon so that the White House can avoid being criticized for leaving Greenspan hanging.

Greenspan was appointed in 1987 by then-President Ronald Reagan to succeed the tough and controversial Paul Volcker. During his four years in office, Greenspan has weathered the stock market crash in late 1987 and the recession that began last summer.

Sources outside the White House said senior Administration officials have, at various times, also discussed potential replacements for Greenspan, including Gerald Corrigan, president of the Federal Reserve Bank of New York and a longtime ally of Volcker, and Martin Feldstein, a Harvard economist and former chief presidential economic adviser during the Reagan Administration.

But officials said now that the recession is ending and the economic recovery has begun, a compelling case against Greenspan could not be made.

“If the economy was still going south, it might be politically more difficult to go with Greenspan, but it is difficult to make a case against him now,” said one knowledgeable source.

Other sources, however, said senior Administration officials have not prepared the kind of groundwork during the past few months that would be needed to consider alternatives to Greenspan.

As a result, even though Sununu and Darman have been unhappy with the Fed’s unwillingness to cut rates more quickly during the past few months, they apparently have not tried to make a strong case for an alternative. In addition, knowledgeable officials said the controversy caused by Sununu’s use of government and corporate jets for personal and political travel appear to have made him less willing to lobby hard against Greenspan, who has a longstanding friendship with the President.

“If they wanted to make a change, they would have had to have done more work on it,” said one senior official outside the White House.

The official said top Administration officials have been concerned that the Fed was slow to lower interest rates during the recession and that it might be reluctant to consider additional cuts now that the recovery appears to be under way.

“But there aren’t any other candidates that they could really take a chance on without some risks,” the senior official said. “And they know that there is really no one better on the face of the Earth at this stuff than Alan Greenspan.”

Indeed, Corrigan and Feldstein would represent risky choices for the Administration. Fed insiders said Corrigan would probably be more willing to fine-tune monetary policy than Greenspan has been, and thus might be more easily influenced by the White House to cut interest rates.

“If they weren’t convinced that the recovery was for real and thought they needed a guy to pump things up, they might want him (Corrigan),” said one Fed official.

At the same time, Corrigan has become an ardent foe of Brady’s pet project as treasury secretary: banking reform. And his close ties to Volcker could worry the Administration that he might eventually become harder to control.

Feldstein, meanwhile, has written recent articles on economic policy that pleased senior Administration officials. But many in Washington remember that while serving as Reagan’s chief economic adviser, Feldstein alienated many conservatives by publicly criticizing Reagan’s unwillingness to deal with growing federal deficits. Such actions have earned him a reputation as something of a maverick.

“Feldstein would be a high-risk guy; he would be erratic,” said one Fed source.

“I have trouble believing that (Corrigan and Feldstein) were serious candidates, unless Bush just said, ‘Let’s replace Greenspan,’ ” said another senior Fed official. “And I don’t think that has been the case.”

Fed sources said that Greenspan is extremely popular within the central bank, and his renomination will be widely hailed by most senior officials.

Greenspan has been criticized within the Fed for his failure to lobby hard in Congress and with the Administration to push the central bank’s positions on banking reform and other regulatory issues.

* A GOOD SIGN

The chief economic forecasting gauge rose for the fourth-straight month. D2