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Rivlin Quits Fed, Raises Rate Fears
Updated 6:38 PM ET June 3, 1999
By Knut Engelmann
WASHINGTON (Reuters) - Federal Reserve Vice
Chair Alice Rivlin Thursday said she will resign,
raising concerns that the loss of her voice of
monetary moderation has brought the world one step
closer to a rise in U.S. interest rates.
The 68-year old Rivlin, a respected economist
known for her moderate anti-inflation and strong
pro-growth views, said she would resign on July 16
to join a prominent Washington think-tank and
spend more time with her family.
Financial markets, caught off-guard by her surprise
move, reacted negatively as analysts speculated her
resignation had raised the odds of a rate rise when
the Fed's policy-making committee next meets on
June 29 and 30.
The Fed said Rivlin would not attend that meeting.
That could weaken the hand of those inside the Fed who may have counted on her
support to make the case for steady interest rates despite evidence of red-hot growth
in the U.S. economy.
In her resignation letter to President Clinton, Rivlin said she will keep her job as
head of the District of Columbia Financial Assistance Authority, which was
appointed to run the capital's finances in 1995 after it nearly went bankrupt.
A Fed spokeswoman said she had nothing to add to Rivlin's statement. Rivlin
herself was not available for comment.
A spree of reports showing the U.S. economy is barreling ahead at full speed has
prompted speculation in financial markets that borrowing costs might be raised soon.
The rate-setting Federal Open Market Committee itself signaled last month it may
move rates up in the near future to keep inflation at bay.
"It introduces a little uncertainty," said Anthony Chan, chief economist at Banc One
Investment Advisors Corp. "It takes another voice of moderation out of the central
bank."
In her last public appearance, Rivlin Tuesday echoed the Fed's warning that the
robust U.S. economy might be in danger of overheating if it did not slow down. But
she told a conference in Montreal that there were no clear-cut signs yet of resurging
inflation pressures.
"She was one of the more liberal members of the FOMC, so if anything, her
resignation pushes them closer to a tightening decision," said Chris Rupkey,
economist at Bank of Tokyo/Mitsubishi in New York.
Rivlin's decision to return to the Brookings Institution -- where she has served as the
Director of Economic Studies from 1983 to 1987 -- leaves the normally
seven-member Fed board with two openings. The other vacancy is the seat of former
Fed governor Susan Phillips, who resigned in June of last year. The White House
has yet to fill her position.
Rivlin and Phillips were the only two women on the Fed's board. The board,
together with regional Fed presidents who vote on a rotating basis, is responsible for
setting interest-rate policy, even though much of the real power over U.S. monetary
policy lies with Fed Chairman Alan Greenspan.
"(Rivlin) would agree that Alan Greenspan is the acknowledged leader of monetary
policy. He's going to set the course," said Peter Kretzmer, economist at Bank of
America Securities LLC in New York.
Greenspan praised Rivlin's contribution to the U.S. central bank and said he
regretted her departure. "In the exercise of her many international responsibilities as
Vice Chair, her steady common sense served us well during a particularly difficult
period," he said in a statement.
President Clinton said he was sorry to hear about Rivlin's departure. "For many
years, Alice has been a steady and strong voice for fiscal discipline, and she
deserves much credit for helping usher in a new era of budget surpluses," he said in
a separate statement.
There was no word about a potential successor.
Rivlin was director of the White House's Office of Management and Budget from
1994-1996 immediately before joining the Fed in its No. 2 position. Her term as vice
chair would have run until June 24, 2000, and her term as a member of the Fed's
board would have run until Jan. 31, 2010.
Rivlin commanded the respect of financial markets as well as of her peers in the
power-corridors of Washington for her no-nonsense approach to economic affairs.
Her down-to-earth, blunt style often contrasted with Greenspan's more oblique and
guarded stance, though the two were said to have had a close, collegial working
relationship.
Rivlin's departure was the second high-level resignation from Clinton's top
economic team after Treasury Secretary Robert Rubin last month announced he
would step down in July.
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