President Bush yesterday nominated Alan Greenspan to serve a fifth term as chairman of the Federal Reserve Board, providing financial markets with a source of stability at a time of economic transition.
Bush said more than a year ago that he intended to nominate Greenspan, 78, whose current four-year term as chairman expires June 20. And Greenspan had indicated then that he would happily accept. But the lack of movement on the matter since then had provoked some speculation among analysts that either of the two men might have had a change of heart.
The president put that to rest yesterday, issuing a statement announcing his intention to renominate the chairman and adding, "Alan Greenspan has done a superb job . . . and I have great confidence in his economic stewardship."
Greenspan, who met with Bush yesterday, responded with a statement saying he was honored by the opportunity "to continue my service" as central bank chief.
Financial markets had little reaction to the news. If Greenspan had not been renominated at some point, "there would have been great instability" in the markets, said Diane Swonk, chief economist for Bank One Corp. The action provides "much-needed certainty in what was becoming an uncertain world."
Senate confirmation should be swift and easy, given the breadth of Greenspan's support in Congress. Sen. Richard C. Shelby (R-Ala.), chairman of the Senate Committee on Banking, Housing and Urban Affairs, "believes Chairman Greenspan has done an outstanding job and looks forward to supporting his nomination in the Senate," said Andrew Gray, the committee spokesman.
Greenspan was first appointed Fed chairman in 1987 by President Ronald Reagan to replace outgoing chairman Paul A. Volcker, who has been credited with launching the long, painful and ultimately successful central bank campaign to bring inflation down from the double-digit highs it hit in the late 1970s.
Greenspan was reappointed as chairman once by President George H.W. Bush and twice by President Bill Clinton.
Some of the jitters about Greenspan's prospects this year arose from memories of how some in the first Bush White House blamed the Fed chairman for not cutting interest rates quickly enough in response to the 1990-91 recession, which they believe helped cost that president the 1992 election.
The elder Bush once said of Greenspan, "I reappointed him and he disappointed me."
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."