Bush nominates Greenspan for fifth term as Fed chairman

Wednesday, May 19, 2004

WASHINGTON -- Federal Reserve Chairman Alan Greenspan, who has helped steer the economy for 17 years under four presidents, was nominated Tuesday for a fifth term by President Bush, who said he had "great continuing confidence" in Greenspan, echoing the widely held view on Wall Street.

"Alan Greenspan has done a superb job as chairman," Bush said in a brief written statement issued shortly before a White House meeting with Greenspan.

Financial markets took the midday announcement in stride because it had been widely expected. Bush took the unusual step of announcing in April 2003, at a time when Greenspan was undergoing successful surgery to correct a noncancerous enlarged prostate, that he would nominate the Fed chairman for a fifth term in 2004.

That action and Tuesday's formal announcement were seen as efforts to reassure financial markets that the country's monetary policy will remain on a steady course during the presidential campaign season.

Greenspan was first tapped for the Fed position in 1987 by Ronald Reagan.

Greenspan succeeded another legendary Fed chairman, Paul Volcker. In the early 1980s, Volcker tamed a decade-long bout of inflation by driving interest rates to their highest levels since the Civil War.

Greenspan has not had to resort to such extraordinary measures during his nearly two decades at the Fed. However, he has proven to be very skillful in building consensus among a changing cast of Fed officials for an approach to monetary policy that has stressed small pre-emptive strikes to keep inflation in check.

Many economists believe another series of quarter-point increases in the Fed's key federal funds rate, the first rate hikes in four years, will begin at the central bank's next meeting on June 29-30.

Politicians usually are not happy when the central bank raises interest rates, but analysts said the impending rate increases likely will have little impact on what is expected to be an easy Senate confirmation for the Republican Greenspan. He is held in high regard by members of both parties in Congress.

"Democrats will take the opportunity to criticize the administration and say that the prospect of the Fed raising rates is just one more problem for the economy to endure," said economist David Jones, author of four books on the Greenspan Fed.

Greenspan, who had served as chairman of Gerald Ford's Council of Economic Advisers before taking the Fed job, was renominated as Fed chairman in 1991 by Bush's father, who later blamed him for his re-election defeat in 1992, and twice by Democrat Bill Clinton.

The White House announcement said Greenspan was being nominated for a Fed chairmanship "not to exceed four years." White House spokesman Scott McClellan did not directly answer questions about whether Greenspan, 78, would serve the full four years of a new term.

"Obviously, there are term limits on the position, but the president wants him to continue to serve as long as possible," McClellan said.

There is a complicating factor in that Greenspan's separate 14-year term as a Fed board member runs out at the end of January 2006. Under law, Greenspan can't be nominated for another board term.

Greenspan has told friends that he intends to retire when his board term is up in early 2006.

If Greenspan steps down in 2006, that would give whoever is the next president time to find a replacement and have that person confirmed by the Senate well before the 2008 presidential race begins to heat up.

Among those most often mentioned as successors to Greenspan if Bush wins re-election are Treasury Undersecretary John Taylor; Glenn Hubbard, Bush's first CEA chairman who returned to his job as a professor at Columbia University, and current Fed board member Ben Bernanke, who was placed on the Fed by Bush.

If presumptive Democratic nominee Sen. John Kerry wins the White House, he has said he would consider former Clinton Treasury Secretary Robert Rubin as a successor to Greenspan.

In a statement Tuesday, Kerry congratulated Greenspan on his renomination and said his overall record had been "one of distinction." Kerry said, though, that Greenspan's handling of monetary policy was being undermined by "President Bush's complete abandonment of fiscal discipline."

Greenspan has served as Fed chairman longer than anyone other than William McChesney Martin, who was Fed chairman for almost 19 years through the 1950s and 1960s.

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