Fed watchers say the administration can't count on getting the results it wants by changing voting power on the Federal Open Market Committee.
Treasury Secretary Nicholas Brady recently called for congressional hearings on a bill that would strip the presidents of the 12 regional Federal Reserve banks of committee votes. Only the seven Federal Reserve Board governors would then vote on monetary policy.
Mr. Brady has been highly critical of the Fed for reducing interest rates too slowly.
The bill would relegate the regional president to the role of advisers to the open market committee, which sets targets for the money supply and interest rates. Currently, the president of the Federal Reserve Bank of New York, and four others,on a rotating basis, vote with the Fed governors.
Critics of the system reason that the bank presidents, who are selected by the independent Fed directors in their regions, are not accountable to the public. The central bank governors, by contrast, are nominated by the President and must be confirmed by the Senate.
The bill would also require regular consultation between the Policymaking committee and administration economic officials. Though much informal contact exists now, including weekly breakfast meetings between Fed Chairman Alan Greenspan and Mr. Brady, the Fed is under no obligation to talk to the administration.
The bill was introduced last summer by Sen. Paul Sarbanes, D-Md., and Rep. Lee Hamilton, D-Ind. - chairman and vice chairman, respectively, of the Joint Economic Committee. Because its sponsors are respected as thoughtful leaders, the bill is being taken seriously.
But opponents say its passage would undermine the central bank's independence while doing little to change the outcome of policy deliberations.
"I think it shows desperation," said David M. Jones, chief economist at Aubrey G. Lanston & Co., New York. "That's really meddling With the Fed."
For one thing, there is no guarantee that Fed appointees will toe an administration's line. Fed watchers point to board member Wayne Angell, who has been extremely reluctant to cut interest rates because he is worried about reigniting inflation.
"Angell actually went there [in 1986] to help goose up the economy," said James Annable, chief economist at First Chicago Corp. "It took him a while to become an inflation fighter."
Some economists say the recent spate of rate cuts might have come more slowly if the Fed presidents had been shut out of the decision.
Hawks with Blunted Beaks
Though the bank presidents used to be regarded as the Fed's staunchest inflation fighters, they are now "somewhat more pragmatic than ideological," Mr. Jones said. They helped prod three Fed governors - Mr. Angell, John LaWare, and Edward Kelley - to cut rates.
One of the staunchest anti-inflation hawks, San Francisco Fed President Robert Parry, has moderated his tone, Mr. Jones said, "because of troubles in his region." And the most vocal inflation fighter among the regional presidents - former Cleveland Fed President Lee Hoskins - returned to the private sector last year.
Several other regional presidents who were considered hawks "turned out to be aggressive easers back in December, because money growth was so weak," said a former Fed governor, who did not want to be named.
3 Prominent Converts
Among these latter are Robert P. Black of Richmond, Thomas C. Melzer of St. Louis, and Gary H. Stern of Minneapolis.
Others say the regional presidents belong on the policymaking committee, regardless of whether the administration likes their decisions.
"They hear things and have access to information that you wouldn't have if it was all Washington-based," said Stuart Hoffman, chief economist of PNC Financial Corp., Pittsburgh.
"If ever we needed a diagnosis of the economy by region, it's now," Mr. Jones added.
Though the Sarbanes-Hamilton proposal clearly hasn't been on a fast track, it is said to have made Fed officials nervous. Many bills to restructure the Fed have been introduced over the years and then disappeared. This one could get a serious review if, as expected, it is reintroduced in Congress next year.
Joseph R. Coyne, the Fed's chief spokesman, said the central bank would likely oppose removing the bank presidents from the committee.
"The impetus comes from the fact that [the bill] has responsible sponsors," said Stephen H. Axilrod, former director of monetary affairs for the Fed and now vice chairman of Nikko Securities Inc., New York.
Momentum May Build
"These kinds of things never pass the first time," said Mr. Annable in Chicago. "But it could happen down the pike. These continual little pushes it gets make that more likely. Most people tend to dismiss that possibility, but we shouldn't."
"I call it 'the Lee Hoskins effect,'" he said, referring to the former Fed president's outspokenness, which attracted a lot of attention. "People [in Congress] start to ask, 'Who is this guy? And why is he voting on monetary policy?'"
New York Fed Names Manager
For Its Open Market Account
NEW YORK - William McDonough, executive vice president of the Federal Reserve Bank of New York, has been designated manager of the Federal Reserve's open market account.
The appointment gives Mr. McDonough responsibility for carrying out the monetary policy directives of the Federal Open Market Committee, effective Oct. 1.
Mr. McDonough's appointment was approved at the committee's meeting last Tuesday.
He will replace Peter Stern-light, the manager of Fed domestic operations for the past 16 years.
New Unit Was Formed
The recent announcement of Mr. Sternlight's retirement on Sept. 30 prompted a series of organizational changes that will put both open market operations and foreign exchange trading in a newly created financial markets group under Mr. McDonough.
Mr. McDonough, 58, a prominent international banker, spent 22 years at First Chicago Corp. before his retirement as a vice chairman in 1989.
He then served as adviser to the World Bank and International Finance Corp., and as special adviser to the president of the Inter-American Development Bank. He became manager of the New York Fed's foreign operations last January.
The open market committee, with New York Fed directors' approval, also designation Margaret L. Greene deputy manager for foreign operations and Joan E. Lovett deputy manager for domestic operations. Both are senior vice president at the New York Fed.
Ms. Greene has had supervisory responsibilities in foreign, exchange for more than 20 years, and Ms. Lovett has been responsible for the open market area since 1987.