Hoskin's Resignation From Fed May Shift Policy Toward Middle

The departure of Cleveland Federal Reserve President W. Lee Hoskins, the strictest inflation fighter among Fed policymakers, may move the consensus on monetary policy at the Fed more toward a middle ground, economists said yesterday.

The Cleveland Fed announced yesterday that Mr. Hoskins will leave in mid-November to become president and chief executive officer of the Huntington National Bank of Columbus, Ohio. Analysts said the move came as a surprise.

"The Fed system is losing its most articulate and obstinate anti-inflationary point man," said Frederick Sturm, an economist at Fuji Securities.

Mr. Hoskins "was the most unwavering proponent of zero inflation," said Astrid Adolfson, an economist at McCarthy, Crisanti & Maffei Inc. "His departure means the Fed will gradually move toward a middle-of-the-road stance."

Fed policymakers walk a constant tightrope as they try to attain their twin objectives of fighting inflation and promoting a healthy economy.

The more hawkish of the policy-makers, including Mr. Hoskins, argue that monetary policy has little effect on the real economy and therefore the Fed should concentrate on the goal it can accomplish, that of keeping inflation in check.

Mr. Hoskins "has been pretty vocal and one of the most consistent inflation fighters," said Anthony Karydakis, senior financial economist at First Chicago. "It gives you a feeling of security to know that people like Hoskins and [San Francisco Fed President Robert] Parry are around and have a voice."

Mr. Sturm said some of the other presidents, including Mr. Parry and Minneapolis Fed President Gary Stern, will keep up the anti-inflationary fight.

"Hoskins's departure will not eviscerate the hawkish side of the committee," he said. "There's plenty of very intelligent and equally articulate, if not equally flashy, hawks out there."

"The key question will be who's going to replace him," Mr. Karydakis said. "If his replacement is going to be a little more in the mainstream, there may be a slight tilt among FOMC members to a less hawkish attitude, because he was apparently an influential guy."

Presidents are chosen by the boards of directors of their respective banks.

Mr. Karydakis said he expected Cleveland's board would choose someone with views similar to those of Mr. Hoskins.

Before joining the Cleveland Fed in 1987, Mr. Hoskins was chief economist at PNC Financial Corp. in Pittsburgh.

Treasury Nominee Resigns

Henry Mlynarski, a former Citicorp official who was nominated last month to serve as the Treasury's top debt manager, withdrew as a candidate "to avoid any appearance of impropriety," a Treasury spokesman said.

Mr. Mlynarski, who was nominated in August to succeed Michael Basham as deputy assistant secretary for domestic finance, resigned last Friday, according to Claire Buchan, deputy assistant secretary for public relations at Treasury.

"The whole subject of public debt management, including the role of primary dealers and debt issuance, is under review and he felt that his prior role as a manager of a primary dealer, in the current climate, could be viewed by some as a conflict of interest," Ms. Buchan said.

The Treasury is one of a number of agencies investigating the Treasury security market in the wake of the Salomon scandal, and the investigation has broadened in recent weeks to involve all the primary dealers in Treasury securities.

Until August, Mr. Mlynarski headed the Treasury trading desk at Citicorp Securities Markets, which is a primary dealer. He joined Citicorp in 1989 after trading Treasuries for five years at Goldman Sachs.

Although his candidacy was still pending, Mr. Mlynarski had begun working at Treasury on a temporary basis as a senior analyst of federal finance, Ms. Buchan said.

Yesterday's Trading

Treasury note and bond prices closed slightly higher yesterday after a typically quiet Monday session, with the 30-year bond up 1/8 point to yield 7.87%.

Traders said the usual Monday torpor may have been reinforced by apprehension about this week's auctions, which include $13 billion of two-year notes to be sold today and $9.25 billion of five-years to be sold tomorrow.

Still, a government note trader said yesterday's price action suggested the note auctions will go well.

"I don't think the Street has had a lot of success in beating up the market ahead of supply," the trader said. "And I think there's enough fundamental value, or bulls who see fundamental value at these levels, that the auctions go okay."

Yesterday's sale of $21.2 billion of three- and six-month bills went fine, with the three-months coming at an average rate of 5.18% and the six-months averaging 5.23%.

But for the rest of the session, bills traded weakly, a bill trader said.

He blamed the bill sector's problems on the approach of the end of the quarter. Dealers "don't want to get loaded up on Treasury bills that will impact their balance sheets," the trader said.

The Treasury's report yesterday afternoon that the August federal deficit came in a little better than expected at $42.65 billion had no impact on prices.

That is a big improvement from last August's $52.72 billion gap, but analysts say last August's deficit was exaggerated because September Social Security payments were sent out early.

Treasury traders ignored a series of optimistic comments on the economy from Fed policymakers and from Michael Boskin, chairman of the President's Council of Economic Advisers.

The December bond future contract closed 1/8 point higher, at 99 8/32.

In the cash market, the 30-year 8 1/8% bond was 5/32 higher, at 102 25/32-102 29/32, to yield 7.87%.

The 7 7/8% 10-year note rose 3/16, to 102 6/32-102 10/32, to yield 7.53%.

The three-year 6 7/8% note was up 1/16, at 101 9/32-101 11/32, to yield 6.35%.

In when-issued trading, the two-year note was offered at 6.16% and the five-year note was bid at 7.08%.

Rates on Treasury bills were mixed, with the three-month bill up two basis points at 5.21%, the six-month bill up one basis point at 5.25%, and the year bill one basis point lower at 5.23%.

Table : Treasury Market Yields

Prev. Prev.

Monday Week Month

3-Month Bill 5.34 5.32 5.55

6-Month Bill 5.45 5.41 5.70

1-Year Bill 5.51 5.53 5.82

2-Year Note 6.12 6.15 6.41

3-Year Note 6.35 6.45 6.76

4-Year Note 6.57 6.60 6.88

5-Year Note 7.05 7.09 7.41

7-Year Note 7.34 7.41 7.73

10-Year Note 7.53 7.61 7.90

20-Year Bond 7.80 7.86 8.08

30-Year Bond 7.87 7.92 8.14

Source: Cantor, Fitzgerald/Telerate

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