New Members Seen as Less Focused on Inflation

NEW YORK - Four new members will make the Federal Reserve System's Open Market Committee slightly more flexible on inflation in 1993, economists said last week.

The Federal Open Market Committee will see an economy growing slowly, and with low inflation. The panel could be the first in two years that seriously considers raising interest rates.

The FOMC has been accused on Capitol Hill and elsewhere of not easing credit conditions fast enough. Hawks on the committee, the critics argue, focused too much on inflation and too little on monetary growth.

The key monetary policy body has 12 voting members: the seven Federal Reserve Board governors and five of the presidents of the 12 district Federal Reserve banks. Of the five regional presidents, the New York chief executive - currently E. Gerald Corrigan - holds a permanent seat, and four others rotate.

The district presidents given voting rights in 1993 are Edward Boehne of Philadelphia, Silas Keehn of Chicago, Robert McTeer of Dallas, and Gary Stern of Minneapolis.

Less Monolithic

Economists said these men should make the committee less monolithic, though they must stand ready to combat inflation as the economy grows.

The economists generally expect the Fed to tighten credit in 1993, probably in the second half, possibly in the second quarter.

Financial markets know Mr. McTeer less well than the other new committee members. He moved to Dallas in February 1991 from the Baltimore branch of the Richmond Fed, which has a conservative tradition concerning monetary policy..

"Everyone in Richmond wears a monetarist sports jacket," said Ward McCarthy, a managing director at Stone and McCarthy Research Associates Inc.

Mr. Boehne and Mr. Keehn are viewed as moderates likely to join the majority camp.

"In Mr. Keehn's last five FOMC terms he never dissented," said Dana Sorrentino, economist at Citicorp Investment Bank.

Mr. Stern is also seen as unlikely to rock the consensus boat.

Rotating off the committee are two outspoken anti-inflation hawks - Jerry Jordan of Cleveland and Thomas Melzer of St. Louis.

"We'll see a more eclectic FOMC" next year, said Anthony Chan, senior economist at Barclays de Zoete Wedd Government Securities Inc. "The people who are leaving are more obsessed with the money numbers."

The new members "may be a little more pragmatic than the other crew, a little less of a monetarist bent," said James Fralick, senior economist at Morgan Stanley and Co.

But with 12 voting seats on the committee, "The power of any one individual is limited, even [Fed Chairman Alan] Greenspan," said Douglas Schindewolf, associate economist at Smith Barney, Harris Upham and Co. "The composition of the presidents is not a swing factor."

Although the Fed is expected to keep policy steady for some time, it is on guard for any sign of accelerating inflation that could endanger the delicate recovery. If inflationary signs crop up, the Fed is expected to tighten.

The balancing act is never easy, but the economists said Open Market Committee deliberations will be less stressful than in 1992. "I think their job is less nail-biting," said Mr. McCarthy. "The FOMC of 1992 had many sleepless nights wondering if we were having a recurrence of the 1930s."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.