Bush Says Greenspan Deserves 5th Term as Fed Chief

President Bush surprised the financial world Tuesday by signaling his willingness to appoint Federal Reserve Chairman Alan Greenspan to a fifth term as leader of the nation’s central bank.

Observers thought that Greenspan had angered Bush this year by offering tepid support for the president’s latest tax cut proposal. And some assumed that the White House would seek to install its own choice when Greenspan’s four-year term expires in June 2004.

But asked by reporters Tuesday whether the central banker deserved reappointment, Bush answered, “Yes, I think Alan Greenspan should get another term.”

The White House called attention to the remark by issuing a news release.

Fed watchers were caught flat-footed by the president’s apparent decision. “It’s certainly a surprise to me,” said Allan Meltzer, a Carnegie-Mellon economist who is writing a multivolume history of the Fed. Meltzer said he was certain that Bush and his advisors “would want their own person in there.”

There may be something less than meets the eye to Bush’s readiness to reappoint Greenspan -- who wouldn’t be able to serve out another full chairmanship.

The chairman must be a member of the Fed’s governing board, and Greenspan’s 14-year appointment as governor runs out in January 2006, less than half way through what would be his next chairmanship. The law allows Fed governors to serve for only one full term. Greenspan served the final years of former Fed Chairman Paul Volcker’s term before being appointed to a full term of his own.

Analysts suggested that the president’s apparent decision was at least in part a political holding action, aimed at putting off a potentially sensitive appointment until after the 2004 presidential election.

“The last thing the administration wanted was the headache of looking for an acceptable successor to Greenspan,” said longtime Fed watcher David M. Jones. “There’s nobody in the wings who’s an obvious successor the way Greenspan was for Volcker.”

Even so, reappointment would cinch Greenspan’s already considerable reputation as a Washington power player and consummate political survivor.

He would be 78 when he begins his next term and in the running to be the longest-serving Fed chairman in the central bank’s history. His only rival would be William McChesney Martin, who is considered the father of the modern Fed and led the central bank for more than 18 years from 1951 until 1970. Greenspan already has 15 years under his belt.

Greenspan would boost his chances of leaving office on a high note, having guided the economy through its current troubles and put behind him the blemishes of the stock and technology bubbles of the late 1990s that some critics say he helped cause.

Bush’s endorsement of Greenspan came on the same day that the Fed chairman underwent surgery for an enlarged prostate. The central bank issued a statement late Tuesday saying the surgery was “routine and successful.” It had said Greenspan tested negative for cancer.

Since President Reagan named him Fed chairman in August 1987, Greenspan has gained near-legendary status for managing the economy through a string of upheavals, including the 1987 stock market crash, the 1998 Asian financial crisis and the 2001 recession.

But doubts about his staying at the helm have lingered, both because of his role in the stock and tech busts and because of his criticism of the administration’s new tax cut plan to stimulate the economy.

Greenspan angered Republicans in February by telling Congress that the economy needed no more stimulus and warning that deficits endangered growth.

Bush allies, including House Majority Leader Tom Delay (R-Texas), unleashed a torrent of criticism.

“He is wrong. He was wrong back when we were having the bubble, and he is wrong now,” Delay said.

The Republican-led Congress subsequently scaled back the president’s $726-billion tax cut package to between $350 billion and $550 billion. Bush and Treasury Secretary John W. Snow have said the administration is willing to compromise on the higher figure.

Investors Tuesday reacted positively to news of Greenspan’s likely reappointment -- and to better-than-expected sales results from insurers and drug makers -- by pushing stock prices higher.

The Standard & Poor’s 500 index climbed 19.36 points, or 2.2%, to 911.37, its highest level since mid-January. The Dow Jones industrial average rose 156.09, or 1.9%, and the Nasdaq composite index increased 26.99, or 1.9%.