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Favorites pull ahead in Fed derby
Bush's problems with Miers nomination help chances of Bernanke, Feldstein to be next Fed chair.
October 13, 2005: 4:14 PM EDT
By Chris Isidore, CNN/Money senior writer
Who should be the next Fed chairman?
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NEW YORK (CNN/Money) - When it comes to picking a successor to Alan Greenspan, whose term ends Jan. 31, leading Fed watchers are saying this is one time to expect the expected.

President Bush said last week he was getting close to naming a chairman for the nation's central bank. But experts say the chance of the president going outside the handful of widely discussed candidates has probably gone from slim to none, or almost none, due to criticism of Supreme Court nominee Harriet Miers.

"Miers was so out of left field, it makes it even more likely this will not be one of those out-of-left field appointments," said Greg Valliere of Stanford Washington Research Group. "They can't risk the markets having the same reaction to their Fed pick that the conservative right wing is having to Miers."

That may increase the chances for former Fed Governor and current White House economic advisor Ben Bernanke, who David Wyss, chief economist for Standard & Poor's, now estimates has almost a 50-50 chance of getting the nod. Other Fed watchers agree Bernanke is a clear favorite, though Harvard economist Martin Feldstein, the president of the National Bureau of Economic Research, is seen as an almost co-favorite by some.

"I'd be surprised if it's not Bernanke or Feldstein," said chief economist Mark Zandi.

But Feldstein could run into some flak during the confirmation process due to his position as a director of scandal-plagued American International Group (Research). Bernanke, who just went through a confirmation process to become chairman of the White House Council of Economic Advisors, is predicted to easily sail through a confirmation process, which could give him an edge.

"To me the point for the administration in this pick is getting this over with quickly," said Wyss.

Glenn Hubbard, the former chairman of the CEA who is now teaching at Columbia, is also frequently mentioned as a strong candidate and viewed as less of an inflation hawk than Bernanke. Bernanke is seen as the long-time champion of explicitly pegging Fed interest rate moves to the rate of inflation.

"I would be nervous about picking an inflation-targeting champion as my next Fed chairman given the potential impact on employment growth," said Tom Schlesinger, executive director of the Financial Markets Center.

Since members of Congress are rarely in favor of unpopular rate hikes by the Fed, Hubbard might be seen as the more popular choice on Capitol Hill. But most Fed watchers say they would expect little difference in policy no matter which of the favorites are picked.

"No matter who is Fed chairman, they're going to inflation target either explicitly like Bernanke wants to do or implicitly," said Zandi. "Someone without his inflation-fighting credentials might have to do more to win the markets' trust of their inflation-fighting credentials."

Dark horses

Fed watchers also mentioned current Fed governors Roger Ferguson and Donald Kohn as well as Lawrence Lindsey, a former Fed governor and former director of the National Economic Council who was the architect of Bush's tax cut plans during his 2000 campaign.

Kohn is seen as the most popular choice within the Fed, and a Wall Street Journal poll found economists view him and Bernanke as the two candidates best able to handle the job. But Kohn, a registered independent, is seen as having little political support behind him, other than possibly from Greenspan himself.

"I would think Greenspan's got at least a veto power, he could warn the president, 'This guy would be a disaster,'" said Wyss. "But I don't he can hand pick his successor."

Lindsey is seen as being the most political choice, one who could spark long and contentious confirmation hearings. And he was already forced out of his earlier position in the Bush administration in December 2002.

Ferguson, the current vice chairman, would be the first African-American to lead the Fed, but he is a Democrat, albeit one who was reappointed to his current position by Bush. He got good marks for his actions in the wake of the Sept. 11 attack, which took place while Greenspan was out of the country.

The real dark horses might be Dallas Fed President Richard Fisher and Fed Governor Mark Olson. Fisher is best known for his comment in June that the Fed's course of rate hikes were in the "8th inning," suggesting to markets, wrongly, that the tightening was near an end. Olson made an unusual dissenting vote against the Fed's most recent rate hike.

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