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Office of the Press Secretary

For Immediate Release February 22, 1996
                           PRESS BRIEFING
                         BY DR. LAURA TYSON

The Briefing Room

5:10 P.M. EST

MR. MCCURRY: I will be brief. I know everyone is on deadline. I've asked Dr. Laura Tyson, who is the National Economic Advisor to the President, and who really shepherded the process by which the President made his decisions today related to the chairmanship and the two vacancies on the Federal Reserve Board, to briefly describe a little bit of the process involved, some of the deliberations that led to the nominations the President has just announced, and then take any questions that you might have.

DR. TYSON: Well, I'll be very brief. The process really was one of starting really last summer, beginning to think through with a small group of the President's economic advisors questions about appointments to the Board. Understanding that the composition of the Board does matter and realizing that we had John LaWare slot to fill -- we did not know if we would have a vice chairman's slot to fill because Alan Blinder had not made his decision and indeed did not make it until just a few weeks ago. And we knew that we had a decision about the chairmanship.

So we spent time together and we spent time talking to people around the country and really putting together lists of possible candidates, understanding, again, that there was interactions in terms of individuals. And that's really what the process was. And then we proceeded to develop alternatives for the President. And then, of course, we really waited to see what Vice Chairman Blinder's decision would be before we made our decisions.

Q Why wasn't a banker appointed? LaWare was a banker and he urged the President to appoint a banker.

DR. TYSON: We have, in all of our decisions, looked for outstanding individuals who could bring various types of confidence to the Board. We did talk to a number of members of the banking community. We collected recommendations. We actually talked to a number of potential candidates from the banking community, and basically ended up with a list which did not have any bankers on it. Now, that is partly because in our process of search we searched for the best possible candidates and by the end our group did not include a banker.

Now, there's nothing -- as I said, our position was to bring individuals of outstanding quality to the Board, and we feel that the three individuals we talked about today clearly do that.

Q The President just indicated that he had to practically beg Dr. Rivlin to take this job. Can you explain for us the nature of her reservations and when did she finally change her mind about this?

DR. TYSON: Well, as you understand, Dr. Rivlin has been deeply engaged in the budget process. She has been involved in that and has -- both here and before she came here, much of her working life as an economist has been involved with budgetary matters. So, clearly, she was happy with her job, satisfied with the job she currently had, and clearly wanted to be here during a period of time when the budget process is being worked out. And in her conversations with the President leading to this decision, the President convinced her that this was a form of public service to the country which was most appropriate now, but, in fact, also they discussed the possibility that, in fact, she would remain through the next several weeks. This is really the key weeks in this very long budget process we've been involved in with the Congress.

Q Will she remain? How is this working?

DR. TYSON: Essentially, we feel that in the next few to several weeks are the key moments in the budget getting out the full 1997 budget dealing with the Congress on our efforts to get a balanced budget. And the timing of this decision is such that Dr. Rivlin will be able to shepherd much of that through before she would go to join the Board of the Federal Reserve.

Q Dr. Tyson, did the President talk with the two new candidates, the two new appointees about what levels of growth they think are sustainable with that inflation?

DR. TYSON: Well, I think, as Dr. Rivlin indicated in the question in the Oval Office, they certainly talked about growth and they certainly talked about the ways to work to enhance the economy's growth capacities, and they certainly talked about the need for an appropriate mix of monetary and fiscal policy to have sustained economic growth with low inflation. That's what they talked about.

Q And the President is confident that with these appointments there will be a diversity of views on the Board, including some people who are going to advocate higher rates of growth?

DR. TYSON: I think the President is confident that we have individuals of outstanding quality who bring to the Board broad knowledge of the macroeconomy, broad technical expertise about how the economy functions, and will add to the FOMC strength that is needed to continue this important debate about growth.

So, the issue -- you know, Chairman Greenspan -- I was talking with the President after the announcement in the dining room -- we were all having a talk. And he made the point to us that the FOMC is something like a debating forum, and individuals come to the FOMC and they debate about where the economy is on the basis of its current indicators and where it can go. And oftentimes in that debate they bring the advice and the experience and the forecasts of outside experts including, for example, Dr. Meyer, who is -- certainly his work is known to the Board.

And any individual who comes to that Board who can enhance the quality of the debate will help in making the very tough monetary policy decisions that have to be made.

Q Two questions, one to clarify on the banker question. Did you have any bankers on your list that were financially able -- met the financial requirements to take the Fed post?

DR. TYSON: What does that mean?

Q Holding no stock, being divested --

DR. TYSON: Those kinds of things would have come up if you go down a path of talking to someone about their interest in the Board and about what they might need to do to qualify for the Board, in terms of meeting the financial limitations and requirements. Those were discussed as appropriate.

Q But did you -- one of the questions in the markets is about why you didn't appoint a banker. Is it you weren't able to find anybody willing to divest, or who did not hold stock, who could take the job.

DR.TYSON: I want to start by saying we did not think -- there is nothing in the FOMC rules; there is nothing in the Federal Reserve Act; there is nothing in the history of the Federal Reserve Board to suggest that a seat -- there is a banker seat; there must be a banker. What there must be are qualified individuals who have technical expertise about the macroeconomy. There is an extremely qualified and competent staff at the Federal Reserve that works with members of the Board to make monetary policy decisions, credit market decisions, money market decisions, bank regulatory decisions.

So our view is always to find outstanding individuals. One place to look for outstanding individuals clearly was in the financial markets themselves, and we did look. But after a long process and a very reasoned process of thinking through alternatives, and that includes people who were interested -- I mean, one of the requirements is that you be at least reasonably interested in talking about being on the Board. We did our homework, and when, at the end of the day, when we put together our list, we feel that we've come forward with the most qualified package.

Q Okay. And to follow up on the question about growth, what does the President expect these people to do at the Fed, and why does he think a debate at the Fed is going to have a particular effect on long-term growth, since the Fed doesn't particularly affect long-term, but rather short-term --

DR. TYSON: Well, I actually would again go back to what Chairman Greenspan said to the President afterwards, and he said that I was perfectly to quote him on this -- the FOMC is a debating forum. The issue of debate -- an issue of debate is at any moment in time, how fast can the economy grow, how low can the unemployment rate go without igniting the kind of inflationary pressure which all too often in the postwar period has been the source of the end of expansion. So that is a key function of this institution. It is a professional institution. It is an institution responsible for helping to guide the course of the macroeconomy. Where better in our society to have a debate about how the fast can the economy grow, and what are the determinants of its growth rate, and what can policymakers do to influence its growth rate over time.

Q Is he looking for them to be outspoken, to take public positions in opposition, perhaps, to the Chairman if they feel that the Fed might be tightening too early?

DR. TYSON: I'm sorry --

Q If they feel the Fed might be tightening too early, do you expect them to speak out, to take public positions to make this a public debate?

DR. TYSON: I think we expect them to -- look, the position of the administration, and the President mentioned it in his remarks today, has been to respect the autonomy and professionalism of the Federal Reserve. We will continue to respect the autonomy and professionalism of the Federal Reserve. The Chairman of the Federal Reserve himself notes that a key function of the FOMC is to debate about the economy's economic growth. So, clearly, we want to send individuals to the Board who can be engaged in that debate and who will enhance the quality of that debate which will be good for the country.

Q Dr. Tyson, a number of people on the street today are concluding that after ginning up this big debate about -- or saying that he wanted to gin up a debate about the growth rate and how fast the economy could grow without raising the risk of inflation, that in the end, after pressure from the Banking Committee, the President has backed off that, chosen two economists who are not known for making statements that look anything like the sort of statements that Felix Rohatyn has made. And that essentially has put forward nominees which are safe, right in the middle of the road, very sort of mainstream. Any reason why we shouldn't regard this as a sort of "chickening out" by the administration, to really tee that question up?

DR. TYSON: Well, first of all, I guess I should say a little bit about Mr. Rohatyn because the implication here is that somehow he would not have brought competence and would not have enhanced the quality of the debate.

Q Not, confidence, that he had a different view about the sustainable growth rate.

DR. TYSON: Look, as I said, there are ways to think about the Board, but the main way to think about the Board, from our point of view, was individuals who would add something to the Board. Felix would have added to the Board 30 years, 30-plus years of financial market experience -- experience both domestically and globally. He would have added a long record of distinguished public service as well as private service. He would have debated, as is appropriate at the Federal Reserve, the issue of the economy's growth and the appropriate course of monetary policy. He would have been treated by the administration as an independent and professional member of the Federal Reserve Board, as we treat the entire Board.

He decided, as you know, to withdraw from consideration for that post. And when he decided to withdraw from consideration for that post in response to a highly politicized atmosphere in the Senate reaction to his potential nomination, when he decided to withdraw, which he did, we went back and we went back to our discussions which we'd been having all along and came up with another way to go.

Now, I want to say that this also gets to the issue of Alice Rivlin and her own decision here. She wanted, as she said today clearly, her preference at the time was to stay as OMB Director, and, indeed, when her name had come up and it had come up early as a possible Vice Chair candidate for the Federal Reserve -- she had indicated that she preferred to stay at the OMB.

So we had gone forward and gone forward over time and come up with the name of Felix Rohatyn. Once that was no longer an option, we had to go back and consider again the list of names we had compiled. And the President did talk to Dr. Rivlin. They did talk about the timing of this, and Dr. Rivlin agreed that this was an appropriate thing for her to do for the good of the country. Dr. Rivlin is one of the most distinguished public servants we have.

Q Dr. Tyson, have you -- two things; one, housekeeping. No one said which terms that Dr. Meyer and Dr. Tyson are going to have. There's a 14-year term and a --

DR. TYSON: Dr. Rivlin and Dr. Meyer -- I actually -- that's a very good question. And as a housekeeping question, I will have to actually go and look at which term is being assigned to which individual.

Q The other side of this, just to build on what Clay was talking about, have you talked to the Senate Banking Committee. I mean, have you had any talks with senators and does it look fairly favorable --

DR. TYSON: We have had some talks with some members of the committee and we have had soundings taken on the Hill in a variety of ways and we believe at this point that the chances are excellent for expeditious confirmation of all of these choices.

Q Dr. Tyson, there had been talk at some point that you would leave these two positions open. Why did you decide that wasn't --

DR. TYSON: Well, I don't really know where that talk came from. It was always our intention to fill these positions. We did, after a certain point of time last year, decide that we would hold off on a decision on the post -- the position that had been vacated by John LaWare because we felt it was important to sort of get a composition effect as well as just naming individuals. But that was the only decision we made. We made a decision to hold that until we saw what was going to be the case with the Vice Chair and the Chair.

Q Dr. Tyson, did the President consider not reappointing Mr. Greenspan?

DR. TYSON: We had -- as a committee, we certainly went through various options for the President on all the -- on the Chair, on the Vice Chair, and on the Board members, so the President could feel that when he made a decision he had a decision which gave him options at all levels. He decided on this package, and this is the package that he feels will do the best job in the coming years at sustaining economic growth.

Q Did he ever seriously consider not appointing Greenspan? Obviously he could have not appointed him if he had wanted to.

DR. TYSON: Look, you know what his decision is today. His decision has been to reappoint Alan Greenspan. He did that after reasoned consideration of alternatives of -- looking at alternatives at the whole -- again, at the whole package and at alternatives at each part of the package.

Q Clearly, the President doesn't feel that growth is high enough or he wouldn't have brought the whole subject up. What is the administration's belief that maximum sustainable growth is?

DR. TYSON: You know, the President was very clear what he said the other night -- and it's again very consistent with what Chairman Greenspan said about the FOMC -- what the President said is that there's a lot of uncertainty about this issue, and there is a lot of uncertainty about this issue.

Think of it this way. We have had -- I can give you at least three sources of uncertainty right now. One is, we have just had a change in how we measure economic growth. That change to the change-weighted index has caused some people to sort of -- you know, there are questions about are we measuring quality correctly, are we measuring the productivity of services correctly, are our numbers increasingly correct or might they be mis-measuring economic growth because of the increasing importance of services in our economy. That's the first thing.

So there's some uncertainty just about our own measurement, and economists talk about that all the time. The uncertainties about economic growth are just the flip side of the uncertainties about, say, the CPI. They're related and economists debate this regularly.

Second uncertainty is economists, having noted that the economy for at least 17 months has had an unemployment rate around, 5.5, 5.6, 5.7, in that range, are now beginning to conclude that perhaps that what they call the NAIRU, the non-accelerating inflation rate of unemployment, is lower than they thought. And these are professional economists who spend their lives just asking that question. So there's uncertainty about that.

And the -- let's see, I had three. Productivity, growth, the NAIRU.

Q What about the CPI?

DR. TYSON: No, the CPI is the same thing as the trend -- oh, I know the third uncertainty. Actually, it's -- no, no, there is another one. We as economists tend to just -- unfortunately, what we do when we predict the future is extrapolate from the past. That's really what we all do. And we are living at a time of great change. So just because we conclude on a possibly mis-measured number that the average growth rate in the economy over the last seven years is, you know, two and a half percent, that doesn't mean that tells you about the future.

There are very good arguments about changing technology and changing global competition which would say that our history of the past is not as good a guide to the future -- if it ever was that good a guide to the future -- as it was in the past. And I think what the President said clearly on Thursday night and Friday was there is a lot of uncertainty about how fast the economy can grow, and what better place to have that debate -- what better forum to have that debate -- than the FOMC.

And, indeed, Chairman Greenspan agrees that that is the place to have that debate. And I have seen him quoted numerous times to that effect. So I think there really -- that's really what the President was saying. There's uncertainty. It's a very important question. It's critical to the living standards over time. Why not have that debate?

Q He doesn't have a number in mind?


Q Dr. Tyson, OMB -- once Dr. Rivlin makes the transition, what are the prospects for the President nominating someone to be budget director or leaving Jack Lew as acting director?

DR. TYSON: I have nothing to say on that. We have spent a lot of time in the last few days focusing on this set of personnel decisions and really that question is premature and I don't have a comment.

Thank you very much.

END 5:30 P.M. EST