Greenspan Nominated To 5th Term As Fed Chief

This presidential election year, Greenspan has made clear that the Fed will start raising interest rates soon to prevent the rapidly growing economy from fueling a takeoff in inflation.

The Fed slashed interest rates to very low levels in response to the 2001 recession, the terrorist attacks that year and the uneven recovery that followed. But now that the economy appears to have regained its health, many analysts expect the Fed to raise its target for short-term rates from 1 percent to 1.25 percent at the next policymaking meeting in late June and to raise the target again if necessary at other meetings before the November election. Many other interest rates determined by the markets, such as mortgage rates, have already jumped higher in anticipation and appear likely to climb further.

Bush emphasized the positive yesterday, crediting his tax cuts and the Fed's actions with stimulating the economy's turnaround. "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 the statement.

Another set of rumors about the Fed chairman's future swirled around Greenspan's age and health, provoked apparently by the fact that he canceled a scheduled public appearance earlier this year because of a bad cold.

"He is in good health," said Michelle A. Smith, a Fed spokeswoman.

In 2000, Clinton renominated Greenspan as chairman at the beginning of the year, removing the matter from the table as a campaign issue or source of financial market anxiety in an election year. But in 1996, he had allowed Greenspan's term as chairman to lapse, forcing him to serve as chairman pro tem from March 3 until he was confirmed by the Senate on June 20.

And in 1991, the first President Bush waited until Aug. 9, two days before Greenspan's term as chairman was about to expire, to give him a recess appointment to continue as chairman.

If confirmed, Greenspan's four-year term as chairman would expire June 20, 2008. But it is not clear whether he will continue that long because his term as a Fed board member expires in less than two years.

The Fed chairman must be selected from the seven Fed Board members. Although the chairman can be reappointed, a board member may not serve more than one full 14-year term. Greenspan served out the last years of Volcker's board term, and was reappointed to a board term that will expire Jan. 31, 2006.

Greenspan could choose to step down as chairman then, if he felt it inappropriate to continue in an expired board seat. But under the law, he also could continue in the board seat until the Senate confirms a successor. If the president did not nominate a successor, Greenspan could continue in the seat and as chairman for the next four years.

White House spokesman Scott McClellan, responding to reporters' questions yesterday, declined to speculate about what will happen when Greenspan's board term expires. But he did say, "The president wants [Greenspan] to continue to serve as long as possible."