Greenspan Is Renominated as Fed Chief

President Bush nominated Alan Greenspan to a fifth term as chairman of the Federal Reserve on Tuesday, making short work of speculation that the White House was holding up the renomination in hopes of persuading the Fed to keep interest rates low during the presidential campaign.

Bush said in a statement that he had “great confidence” in the 78-year-old central banker, who had done a “superb job.” Greenspan replied in kind, saying he was honored and would be happy to continue in office.

The renomination attracted bipartisan political support. The president’s likely Democratic rival, John Kerry, said Greenspan’s “overall record as chairman ... has been one of distinction.”

The reaction was a tad cooler among some close to the Fed. “It’s about time,” declared Allan Meltzer, a Carnegie Mellon University economist who is writing a multivolume history of the central bank. Meltzer said he didn’t know whether the White House had intended to pressure the Fed, but suggested the renomination was coming awfully late. Greenspan’s term as chairman runs out June 20.

In some ways, the White House announcement was a formality; the president declared more than a year ago that he intended to tap Greenspan for another term as chairman. And although the Fed chairmanship is a four-year appointment, Greenspan’s tenure as a member of the Fed’s Board of Governors expires in a little less than two years. People close to the Fed leader say he has no intention of remaining beyond that time.

Nevertheless, the renomination does carry some substantial implications.

For Greenspan, it means more time to try nudging the U.S. economy out of its low-interest-rate buzz and into fully self-sustaining growth. It also gives him a chance to clear up some of the more ambiguous elements of his legacy.

Among them: fallout from the stock and tech bust of 2000 that critics say he helped fuel with his embrace of the “New Economy,” and an attempt at central bank openness that has played to less than rave reviews.

Most observers believe that after keeping short-term rates at four-decade lows for 2 1/2 years, Greenspan and his central bank colleagues will begin raising them in late June in an effort to head off inflation.

“It’s ironic the president is renominating [Greenspan] just a month before the Fed is likely to begin raising rates,” said David M. Jones, a veteran Fed watcher and president of a Denver-based consulting firm, DMJ Advisors. “Remember this president’s father blamed the chairman for his 1992 election defeat because of not cutting rates enough.”

For the next president -- whoever he is -- Greenspan’s renomination fixes the date when a successor must be found for someone Time magazine once lauded as head of the “committee to save the world.”

Greenspan’s 17 years as Fed chairman have been action packed. He was appointed by President Reagan to complete the term of Paul A. Volcker in August 1987, just two months before the Black Monday stock market crash. Greenspan’s quick action in that crisis was widely credited with keeping the economy from a deep recession.

Greenspan successfully handled two other cataclysms: the 1998 Asian financial crisis and the aftermath of the Sept. 11, 2001, terrorist attacks, which shut down U.S. stock and bond markets for more than a week.

Although a thoroughgoing Republican, Greenspan clashed with the first President Bush’s economic advisors and embraced Bill Clinton, once the Democrat agreed to put deficit reduction ahead of his campaign policy proposals.

The mix of tight fiscal policy, Fed-engineered low interest rates and the end of the Cold War proved a powerful elixir for the economy, which put on its longest growth spurt since the mid-19th century and made Greenspan one of the most successful -- and certainly the most publicly praised -- Fed chairman in the central bank’s history.

Greenspan will become the second longest-serving Fed chairman after William McChesney Martin, who had the job from 1951 to 1970. He will get a chance to guide the economy through a second recession and recovery after that of the early 1990s. Some economists said the task could prove a daunting one.

Although the nation’s gross domestic product has been growing for more than two years, the economy has just begun to produce new jobs in any substantial numbers and is hooked on historically low interest rates. In addition, the costs of the war on terror and the troubled Iraq conflict may be coming due in the form of burgeoning deficits and rapidly rising oil prices.

“There are an awful lot of geopolitical risks that Greenspan can’t do much about that could make it kind of hard to ride off into the sunset when his term ends,” Fed watcher Jones said.

Greenspan’s term as a Fed governor will end Jan. 31, 2006. People close to the chairman scotched the idea that he would stay on.