President Bush's decision to tap an advocate of supply-side economics for a seat on the Federal Reserve Board won't affect monetary policy during the recession but could make a difference next year, private economists say.
These analysts said they expected that Lawrence Lindsey, 36, would be a strong voice urging lower interest rates next year when other governors of the central bank may be trying to push interest rates higher to battle re-emerging inflationary pressures.Bush on Monday announced plans to nominate Lindsey, a Harvard economist currently serving on the White House staff, to fill a vacancy on the seven-member Fed board of governors.
"He appears to be coming from the easy-money camp as opposed to those who think the Fed's only job is to fight inflation," said Michael Evans, head of a Washington forecasting firm.
The administration also announced that it would nominate current Fed governor David Mullins to the post of vice chairman.
Lindsey would fill a vacancy created by the resignation last July of Fed Vice Chairman Manuel Johnson. His
term would end in the year 2000. Mullins, also a former Harvard professor and one-time top aide to Treasury Secretary Nicholas Brady, was appointed to the Fed last May.
Lindsey has been a leading advocate of the supply-side view that cutting tax rates - by giving individuals incentives to work, save and invest - can lead to higher government revenues.
In a recent book on tax policy titled "The Growth Experiment," Lindsey argued that President Reagan's huge 1981 tax cuts "contributed only trivially to the booming deficits of the '80s," a view contrary to that held by many other economists.
Economists said Lindsey's appointment to the board would have little short-term impact on interest rates because the Fed has been voting by wide majorities in the past two months to slash rates in the face of widespread economic weakness.
However, when the economic recovery begins, probably later this year, the central bank will face a debate over how fast to begin tightening credit in order to ensure that inflationary pressures do not get out of hand.
Analysts said they expected that Lindsey would side with advocates of keeping interest rates low, a view certain to be in favor at the White House as the 1992 election campaign year begins.
"When it comes time to tighten in the spring of 1992, I would expect that Lindsey would vote against it. He will want to keep monetary policy loose at least through November 1992 (election)," said David Wyss, chief financial economist at DRI-McGraw Hill.
Evans agreed, saying, "As long as we are in a recession, the Fed is going to ease, but Lindsey could make a difference when the economy turns around."
A published report last year said the White House was so unhappy with Federal Reserve Chairman Alan Greenspan's tight-money policies that he would not be reappointed when his term as chairman ends Aug. 11.
However, the administration has been more supportive since the Fed stepped up its efforts to reduce interest rates. Many analysts said Greenspan's fate was likely to hinge on how well the economy is doing this summer.