Bush renominates Greenspan as Fed chief

Easy confirmation hearing expected despite number of economic complications

May 19, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

Facing troubling economic issues ranging from higher interest rates to record oil prices and early signs of inflation, President Bush sought yesterday to reassure the nation by formally renominating Alan Greenspan as chairman of the Federal Reserve.

The two met at the White House yesterday, and Bush, who promised a year ago that he would retain Greenspan, kept his word, renominating him to a four-year term.

"Sound fiscal and monetary policies have helped unleash the potential of American workers and entrepreneurs, and America's economy is now growing at the fastest rate in two decades," Bush said in a statement. "Alan Greenspan has done a superb job as chairman of the Board of Governors of the Federal Reserve System, and I have great confidence in his economic stewardship."

Greenspan, 78, said in a statement that he was "honored to be nominated by President Bush and, if confirmed by the Senate, to continue my service as chairman of the Board of Governors of the Federal Reserve System."

Greenspan, who has been the Federal Reserve's chairman under four presidents, is highly respected and regarded as among the most powerful men in the world. He can move global markets with a carefully placed utterance.

The Fed chairman faces a delicate election-year question of when and how fast to raise interest rates that have remained near record lows despite a steadily improving economic outlook.

If investors and consumers respond negatively to higher rates, it could stall the recovery and jeopardize Bush's re-election chances. The Fed's announcement that it anticipates rate increases has already caused some investor jitters.

But leaving rates low for too long carries inflationary risks, and there are warning signs of significantly higher prices.

Despite such complications, many expect Greenspan's confirmation hearing before the Senate Banking Committee to be a nonevent, especially because Chairman Richard C. Shelby, an Alabama Republican, is an ardent supporter.

"Senator Shelby believes that Chairman Greenspan has done an outstanding job and looks forward to supporting his nomination in the Senate," said committee spokesman Andrew Gray.

The hearing is expected to be held in early June, Gray said.

"I think he deserves to be renominated; it is a mere formality," said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis. "He has had a great track record. His primary job is controlling inflation and maintaining economic stability, and he has done that. When his confirmation hearing is held, there will be more discussion about interest rates than his qualifications."

Alice M. Rivlin, a former Clinton White House budget director and now the director and senior fellow of economic studies at the Brookings Institution in Washington, said she wasn't surprised by Bush's move.

"Alan has been an extraordinary head of the Fed for a long time. Right before an election I can't imagine why anyone would want to change," said Rivlin, who was the Fed's vice chairman from 1996 to 1999.

She and other Greenspan supporters say he has guided the nation's economy with a deft hand. Not only has he kept inflation at bay, they say, but he has also handled serious economic problems with aplomb, including the 1987 stock market crash, the Asian currency crisis in 1998 and the popping of the Internet bubble in 2000.

"I think he gets very good marks on the monetary policy front," Rivlin said. "He has dealt with a lot of very different things very completely."

Greenspan has been Federal Reserve chairman for 16 years and nine months; he is the second-longest serving Fed chairman after William McChesney Martin Jr., who headed the central bank for nearly 19 years.

Originally appointed by President Ronald Reagan, Greenspan became Fed chairman Aug. 11, 1987, filling the term of Chairman Paul A. Volcker, who resigned. Greenspan began serving his own full 14-year board term Feb. 1, 1992.

Bush nominated Greenspan to a post that will expire in June 2008, but his board term is up in January 2006. By law, he will have to resign as chairman because he will have completed his 14-year board term. But he could continue to serve as chairman until his successor is confirmed by the Senate.

Not everyone was pleased with Bush's choice.

"Not very original, was it?" said Paul Kasriel, chief economist at Northern Trust Corp. in Chicago.

Kasriel said history won't treat Greenspan kindly when his tenure is reviewed: "I think he aided and abetted the stock market bubble of the '90s, and he has aided and abetted the secondary bubble in housing. He has pushed rates so low that people have ... lost their risk aversion in search of yield."

Kasriel said Greenspan's remedy for "just about everything is to print more money."

"If printing money created real wealth then Zimbabwe would be one of the wealthier nations around," he said.

James Grant, founder of Grant's Interest Rate Observer, a widely respected financial journal, said the Fed's decision to hold interest rates at record lows is risky.

"Now he has given us a 1 percent rate, which is an emergency rate, without an evident emergency," Grant said. "I think that he is leaving behind him kind of a snowball of risk. I think this snowball has yet to hurtle down on the unsuspecting investors and consumers."

Kasriel said he wonders why Greenspan doesn't retire and go out a winner.

"Now, through an exceptionally accommodative monetary policy, he has been able to revive this economy: It is up on its feet and it is walking around," Kasriel said. "Why not go out now?"

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