President Clinton, praising Federal Reserve Chairman Alan Greenspan's stewardship of the economy, nominated him yesterday for a fourth four-year term as head of nation's central bank.
"For the past 12 years, Chairman Greenspan has guided the Federal Reserve with a rare combination of technical expertise, sophisticated analysis and old-fashioned common sense," Clinton said at a news conference. "His wise and steady leadership has inspired confidence not only here in America but all around the world."
With Greenspan at the helm, the Fed is widely credited with pursuing a set of interest-rate policies that have helped keep inflation low while encouraging strong economic growth that has reduced unemployment to its lowest level in nearly three decades.
In the process, the central bank has gained credibility with investors that it can be trusted not to allow a return to the boom-and-bust business cycles that have marked much of the nation's history.
Though the Federal Reserve's management of monetary policy is independent of the administration, Clinton and his top economic aides have had a particularly close relationship with Greenspan. The president thanked Greenspan yesterday for his advice in "many conversations" over the years.
Greenspan responded, "My colleagues and I have been very appreciative of your support of the Fed over the years and your commitment to fiscal discipline," and noted that the current economic expansion will become the nation's longest in a few weeks. He also praised Clinton's Treasury secretaries, with whom he has met almost weekly for breakfast or lunch.
Greenspan's term doesn't expire until June 20, but some participants in the financial markets had begun to speculate that Clinton might not reappoint him, or that the administration would try to influence Fed interest-rate policy in exchange for the reappointment.
"That is complete and utter nonsense," Gene Sperling, chairman of Clinton's National Economic Council, said in an interview. "We thought early January was the right time so that before Congress was back in session we would have sent a clear message to the Senate and the markets that Chairman Greenspan would be our nominee and that there would be plenty of time to confirm him before June 19."
The announcement came the same day the stock markets, apparently in response to reports that the Fed is likely to raise interest rates soon, had one of their worst showings.
Greenspan's confirmation by the Senate seems ensured. He was overwhelmingly approved in 1996, and congressional leaders of both parties were enthusiastic about his renomination. Senate Banking Committee Chairman Phil Gramm (R-Tex.), who has called Greenspan the "greatest central banker in the history of the world," said he will schedule a hearing by the end of the month.
Asked why he had agreed to stay on, Greenspan made it clear how much he enjoys the essence of a difficult and demanding job.
"There is a certain, really quite unimaginable, intellectual interest that one gets from working in the context where you have to put broad theoretical and fairly complex conceptual issues to a test in the marketplace," he said. "Unlike a straight academic career, you end up fully recognizing that hypotheses matter, that actions matter, the ideas that you come up with matter.
"It's a type of activity which forces economists like ourselves to be acutely aware of the fact that our actions have consequences. And it's crucially important for us to try to determine in advance what those consequences are."
Bill Dudley, chief economist at Goldman Sachs Group Inc. in New York, said of the announcement: "It's not a big bit of news for the market because his reappointment was viewed as 95 percent probable, but it is a small positive because it removes the uncertainty.
"The idea that his renomination or lack of renomination would affect the outcome of the next Fed meeting in February was not true, but you can't stop people from speculating, and this will maybe calm the bond market down a little bit," Dudley added.
Economist Paul Christopher of A.G. Edwards & Co. noted that during Greenspan's more than a dozen years as chairman, "yearly average inflation has been only 3.2 percent, versus the 6.4 percent average annual rate during the 12 years prior to his coming to the Federal Reserve. At the same time, 30-year Treasury bond yields have had a long downtrend, which has helped bring down mortgage rates and has helped equity investors."
"The announcement is good news, not so much because he personally will continue as chairman, but because the nomination really demonstrates Washington's new division of labor in practice: The Federal Reserve controls interest rates to keep inflation low; the Congress keeps the government running without borrowing money that could otherwise be used in the private sector; and the Treasury promotes international commerce and helps keep the dollar strong," Christopher said.
Greenspan was first named Fed chairman by President Ronald Reagan and took office in August 1987. He was reappointed by President George Bush in 1991, but only after a delay "intended to teach him a lesson," according to Bush era officials. They were miffed he had not lowered interest rates fast enough to help Bush in his reelection race with Clinton. Clinton appointed Greenspan to a third term in 1996.
Greenspan and other Fed policymakers, who raised their target for overnight interest rates last year in three quarter-percentage-point steps, are widely expected to increase it again at their next meeting early in February. The officials are concerned that the economy's strong growth hasn't slowed as they had hoped.