WASHINGTON - President-elect Barack Obama will rely on a board of external advisers to both contribute to and oversee the development of the economic recovery proposals his administration plans to introduce immediately after his inauguration in January, he announced Wednesday.
The so-called President's Economic Recovery Advisory Board will be chaired by Paul A. Volcker, who was chairman of the Federal Reserve Board between 1979 and 1987.
Members of the board, modeled after President Dwight Eisenhower's foreign intelligence advisory board, were expected to be named in the coming weeks.
Staff will take direction from Austan Goolsbee, a long-time adviser of Obama. Goolsbee will also be chief economist for the board, the president-elect said at a press conference last week in Chicago.
Obama stressed that the board would fulfill his campaign promise to consider input from those outside of Washington - from business, labor, and academia, among other sectors. He also explained that the board would report to him and Vice President-elect Joe Biden as they craft their plan for economic recovery, a process Obama said is expected to take two years.
The president-elect last week announced his nominees for lead architects of the federal budget and economic stimulus package, including Timothy F. Geithner as Treasury secretary, Lawrence Summers to head the White House's National Economic Council, and Peter Orszag to run the Office of Management and Budget.
Volcker, 81, has most recently been chairman of the International Accounting Standards Board, but he is most famous for battling inflation during the 1980s as Fed chairman.
Volcker was appointed by President Jimmy Carter in 1979 and did not move on interest rates until after the 1980 election to avoid political meddling. In 1980, the economy slipped into a recession just as Volcker was tightening the borrowing screws.
In 1981, the Fed raised interest rates to between 18% and 20% in an effort to combat inflation that had surged above 12% in 1980. In the first years of Volcker's chairmanship, high-grade municipal bond yields rose to over 11% in 1981 and 1982, according to Standard & Poor's.
His actions were criticized by some at the time for accelerating the recession. But by 1983, the consumer price index cooled to 3.21% for the year.
Economists approved of Obama's choice of Volcker, citing broad respect for the former chairman.
"Volcker's reputation as Fed chairman defined him as an inflation fighter, but he's well regarded by economists and policy makers for his breadth of knowledge and understanding of the financial markets," said David Resler, chief economist at Nomura Securities International Inc.
Resler, who said he does not agree with Obama's general economic strategies and did not vote for him, said Obama "has assembled a stellar team" to address the economic crisis.
Obama said Wednesday he will appoint additional candidates to the advisory board who will be "candid and unsparing in their assessment."
As chairman of the new advisory board, Volcker may serve as a balance to the economic minds in Obama's council who are likely to attack the economic downturn using a fiscal policy of spending.
In Volcker, Obama sends a "subliminal message" to the markets that "we've got our eye on the long-term budget, so don't panic even though we're going to be doing some aggressive stuff," said Jim Glassman, senior economist with JPMorgan Chase & Co.
Volcker criticized current Federal Reserve chairman Ben Bernanke this year for expanding the power of the Fed during the Bear, Stearns & Co. crisis.
"Out of perceived necessity, sweeping powers have been exercised in a manner that is neither natural nor comfortable for a central bank," Volcker told members of the Economic Club of New York in April.