Bush endorses reappointment of Greenspan
By Patrice Hill
THE WASHINGTON TIMES
April 23, 2003
President Bush yesterday set aside
past disagreements about tax cuts and said he supports the reappointment of
Federal Reserve Chairman Alan Greenspan.
The 77-year-old Fed chairman, who was in the hospital for a routine
surgery yesterday, has not said he wants to stay beyond the expiration of
his term in June 2004. But Fed-watchers believe he wants to remain at the
helm of the central bank until an economic recovery is firmly in place.
The stock market rallied strongly after Mr. Bush's noon endorsement of
the Fed chairman's 15-year stewardship over the world's largest economy. The
president told reporters at the White House, "I think Greenspan should get
another term."
The Dow Jones Industrial Average jumped 156 points to 8,485, in a broad
rally that pushed all the major stock indexes to their highest levels since
January. The stock advance also was stoked by improving profits at major
corporations, including Pfizer Inc. and American International Group.
The chronically lagging stock market and declining economy this year
surprised and troubled Mr. Greenspan and other Fed governors, who had
expected the economic recovery from the 2001 recession to be well-entrenched
at this point.
In his last appearance on Capitol Hill, Mr. Greenspan blamed the
economic muddle on uncertainties and anxieties raised by the war with Iraq,
including a spike in oil prices to near-record levels in February.
The Fed chairman predicted that the economy would quickly rebound once
the war was resolved — and a steep decline in oil prices and rally in stocks
in the first days of the war, when victory appeared at hand, seemed to bear
him out.
But since that time, the improving trend has stalled amid signs that
joblessness is rising and businesses remain reluctant to hire and spend in a
way that would sustain the economic recovery.
"The military action and the fall of [Iraqi dictator] Saddam Hussein's
regime have not produced signals that business investment is about to surge,
or that economic growth is about to take off," said Robert Parry, president
of the Fed's San Francisco bank, in a speech yesterday.
He said the Fed may need to cut interest rates further from levels that
already are the lowest in four decades, to spur the flagging recovery. The
Fed's rate-setting committee meets in two weeks.
Mr. Greenspan and other Fed officials have said that it is difficult to
get a clear reading of how the economy is faring because of the wild swings
in economic indicators in response to the war and extreme weather conditions
this year.
The Fed chairman cited the war-induced economic fog as his reason for
disagreeing with the White House on the need for tax cuts. He urged Congress
to hold off approval of Mr. Bush's $726 billion plan to see if the economy
rebounded once the war was over.
Mr. Greenspan's advice was influential among some Senate Republicans
who joined with Democrats to slice Mr. Bush's proposed tax cut in half,
arguing like the Fed chairman that they should keep a lid on burgeoning
budget deficits.
The White House's support for Mr. Greenspan was rarely in question
despite the split and sporadic criticism of Mr. Greenspan among Republican
economists who believe the Fed should be acting more aggressively to prevent
a fall back into recession.
Bush officials, who recently agreed to pare the tax cut to $550
billion, have minimized Mr. Greenspan's opposition to the tax cut. Those
officials stressed that the Fed chairman supported Mr. Bush's proposal to
eliminate dividend taxes, though he said it should be offset by spending
cuts so as not to increase the deficit.
But Fed-watchers said Mr. Greenspan's decision to part company with the
president on such a sensitive issue was a sign that he may be considering
retirement.
He is becoming less "political" and asserting his independence, with an
eye to securing his legacy as one of the Fed's most respected and
longest-serving chairmen, said Diane Swonk, chief economist with Banc One.
"Greenspan's got to be a little edgy about the economy at the moment,
but he's still got a little time" to decide if he wants to retire at the end
of his term next year, she said.
Ms. Swonk is optimistic that a strong economic recovery will be in
place by the end of the year, but she predicted that Mr. Greenspan will not
bow out until he sees "a stock market rally that really gets traction."
Mr. Greenspan presided over the longest economic expansion in history
during the 1990s, but his term has been marred by one of history's worst
bear markets, which started when the technology-stock bubble burst in March
2000.
The dramatic decline in stocks has taken a toll on the confidence of
business executives and their willingness to spend and hire — creating a
drag on the economy that the Fed chairman will want to be sure is over
before he leaves office, Ms. Swonk said.
Mr. Parry said that, while he doesn't know how long Mr. Greenspan wants
to remain chairman, "I know he loves his job, and I know ... he has as much
energy, drive and interest as he had 10 or 15 years ago."
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