Reuters
Months Ahead May Be Pivotal for Greenspan
Saturday November 23, 12:45 pm ET
By Caren Bohan and Adam Entous
WASHINGTON (Reuters) - The coming months could prove pivotal for the future of Federal Reserve Chairman Alan Greenspan, sources close to the Bush administration say.
The first half of 2003 is likely to be prime time for a decision on whether Greenspan serves another term at the helm of the U.S. central bank.
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The reason, sources say, is the White House would prefer to have plans for the Fed chief solidified well ahead of the expiry of his term in mid-2004 so presidential election politics do not complicate the issue.
Those who know the 76-year-old Fed chairman say he is in good health and gives no sign of flagging in his enthusiasm for his high-profile job. But Greenspan and the administration are sure to weigh the decision carefully in coming months.
"Whether he is going to decide to continue on or not is an open question," said Lyle Gramley, a former Fed governor. "But 2004 is not a year in which you could expect the Congress to act on an appointment of that magnitude. So if he knew he were not going to stand for renomination, then by all probabilities he would choose next year to go."
The White House says it has complete faith in Greenspan, who has steered the Fed since 1987 and who commands wide respect around the world. Key lawmakers expect him to have President Bush's backing for reappointment when his term expires in June 2004, assuming he chooses to stay on.
But some Republicans with ties to the administration and the Fed say support for Greenspan could erode if the economy takes a turn for the worse next year and Bush gears up for the 2004 presidential election, the outcome of which could hinge on whether Bush can deliver a long promised economic recovery.
"Economic growth is the No. 1 domestic issue for the White House and how Greenspan's tenure fits into that is still up in the air," said Republican consultant Scott Reed. "There's a general feeling that Greenspan has lost some of his luster. Many think the next six months will decide his future."
The economy slid into recession last year and has been undergoing a slow and uneven recovery through most of 2002. The Fed cut rates 11 times in 2001 to reinvigorate growth and, after holding them steady all year, added what Greenspan has termed an "insurance" cut this month.
Greenspan has faced some criticism for his failure to deflate the late-1990s stock market bubble that popped in 2000. However, most private economists laud his quick reaction to the slump and economic shocks that have punctuated 2001 and 2002.
The White House dismissed speculation about Greenspan's future as premature. "It sounds like the musings of people who are trying to stir up trouble. The president thinks Chairman Greenspan is doing a great job and his term isn't even up until June 2004," a White House official said.
WINDOW OF OPPORTUNITY?
With Republicans back in control of the Senate, some Republicans say 2003 presents a rare window of opportunity to push through a hand-picked replacement if Greenspan decides to leave before the presidential race heats up.
Sen. Chuck Hagel of Nebraska, a senior Republican on the Senate Banking Committee, said Republican control over the nomination process "certainly would be a consideration" in the internal White House deliberations over Greenspan's future.
However, economists maintain the wisest course for Bush would be to keep Greenspan. If so, he would likely stay on into 2006, when his term as governor is up, and that would give him a chance to become the longest-serving Fed chairman ever.
"As long as the chairman remains well and healthy, I think he's going to be reappointed early in 2004," said Ken Guenther, head of the Independent Community Bankers of America.
Vice President Dick Cheney, seen as a major decision-making force on issues economic in the White House, has a close relationship with Greenspan.
"I think the Cheney-Greenspan relationship is one of the key power relationships in this town," Guenther said, adding the Republican-appointed Fed chairman has done much that should please the administration -- particularly the decision to slash key interest rates a half percentage point to new four-decade lows earlier this month.
In recent months Cheney, who headed the search to fill Cabinet posts after the 2000 election, has met key conservative economists, including former Federal Reserve board member Wayne Angell, who is seen as a possible successor to Greenspan.
Angell said he believes Greenspan will stay on with Bush's blessing. "At this point in time, it just is not likely in my mind that either Alan Greenspan would want to do that (retire) or that the administration would want (him to leave). There's still a lot that remains to be done," he said.
Bert Ely, a banking consultant based in Alexandria, Va. said a major downside to replacing Greenspan is that it isn't clear who would take over.
Several people who had been mentioned earlier as possible successors -- White House economic adviser Lawrence Lindsey, Treasury's point person on international affairs John Taylor and retiring Senator Phil Gramm -- now seem less likely.
"There's no clear successor," Ely said. "The guy I'm betting on is (Harvard University's) Marty Feldstein."
Wary of changes that could spook the markets, many top Republicans in Congress are already urging Greenspan to stay as long as he's fit to serve.
"I would hope he'd stay on," said Alabama Republican Sen. Richard Shelby, incoming head of the Senate Banking Committee.
Gramm, the committee's outgoing Republican leader, added: "He's as close to an indispensable man as we have, and I hope that he can continue."
Others said dire predictions about what would happen if Greenspan left were overblown, noting warnings swirled ahead of predecessor Paul Volcker's departure but did not bear out.
"Greenspan has been an institution. But it doesn't mean he can't be replaced. We can all be replaced, including Greenspan," Hagel said. |
