Impact of Fed Appointees Will Be Subtle, Analysts Say

Chicago's Federal Reserve Bank named a new president last week, the latest in a string of recent appointments to senior posts within the nation's central banking system.

Fed-watchers do not expect the appointments to bring an immediate shift in the bank's anti-inflation strategy. Yet, the changes are potentially important because each appointee will hold a permanent or rotating vote on the Federal Open Market Committee (FOMC), which decides United States monetary policy.

Michael Moskow, a business professor at Northwestern University in Evanston, Ill., will replace Silas Keehn as head of the Chicago Fed effective Sept. 1. The appointment follows just weeks after two economists were sworn in as new members of the central bank's powerful, seven-member Board of Governors in Washington.

Janet Yellen, a professor of international business at the University of California, Berkeley, joined the board Aug. 12. In June, Alan Blinder, a Princeton University economist and mem-ber of President Clinton's Council of Economic Advisers, became vice chairman of the board. Also, the Federal Reserve Bank of Boston announced in July the appointment of Cathy Minehan as president. Ms. Mine-han has spent her career in the central banking system, holding top posts in Boston and New York.

The Chicago announcement came as debate over the Fed's tight money policy heightened with news that durable-goods orders dropped 4.2 percent in July, the largest decline in 2 1/2 years, signaling a possible economic slowdown. Several economists say it is an aberration, that the economy is strong and that more interest-rate hikes are needed later this year to keep inflation in check. On Aug. 16, the Fed boosted short-term interest rates half a percentage point, the fifth increase this year. ``The Fed is, in our judgment, somewhat behind in raising rates to a sufficiently high level to restrain inflationary pressures,'' says John Ryding, senior economist at Bear Stearns & Co. in New York.

Other analysts disagree, saying the sharp fall in big-ticket factory-goods orders, combined with a weakening of housing and other manufacturing indicators, suggests that the Fed measures are too aggressive. ``There is only one risk, and that is overkill,'' says Robert Parks, a Wall Street economist and finance professor at Pace University in New York.

Analysts say the impact of the appointments on Fed policy will likely be subtle and won't be felt immediately. The appointees will be members of the 19-member FOMC. The two new governors are permanent voting members; the presidents of the Chicago and Boston Feds will join the rotation of regional bank presidents as voting members of the FOMC. Dr. Yellen and Dr. Blinder, seen as less strident inflation-fighters, will likely use their power as governors to lead a move to ease monetary policy in the future, analysts say. ``They are willing to risk a little more inflation in hopes of getting a bit stronger economic growth,'' says Paul Kasriel, a monetary economist at Northern Trust Company in Chicago. ``Right now, I don't think there's a major conflict, but when it comes time to ease monetary policy, I would not be surprised to see Blinder and Yellen in the vanguard.''

In contrast, Fed-watchers say that Dr. Moskow and Minehan, as regional Fed bank presidents, have less power to influence the direction of monetary policy. Their impact is likely to be felt on the specific, technical issues of how to implement FOMC policy. ``Their personal influence ... will come in subtle shadings on tactical issues, not on grand strategy,'' says H. Erich Heinemann, chief economist at Ladenberg, Thalmann & Co. in New York.

Analysts predict that Moskow's main contribution will be to bring his broad experience in business, government, and international trade to bear on FOMC decisions. ``My suspicion is that he will use a more eclectic approach in his monetary-policy decisions and may use his contacts in the corporate world for information. That will be his forte,'' Mr. Kasriel says. Moskow's strengths ``fit the game plan'' of Fed Chairman Alan Greenspan, who has recently emphasized the use of anecdotal evidence in tracking the economy, citing the unreliability of traditional forecasting indicators, he adds.

``I have always drawn heavily on my sources from many different areas, and I hope to do that in this position as well,'' Moskow said by telephone from his office at Northwestern, where he is a professor of strategy and international management. He declined to comment on current monetary policy. Moskow served in the Bush administration as Deputy US Trade Representative, responsible for negotiations with Japan, China, Southeast Asia, and Middle Eastern countries, as well as for trade issues involving several major industries.