Administration Considers Delaying Fed Chief's Exit An Extra Few Months Would Give Greenspan the Longest Tenure
By Nell Henderson Washington Post Staff Writer
Federal Reserve Chairman Alan Greenspan frequently urges Americans to postpone retirement and stay on the job longer.
He may soon get the chance to do so himself.
Bush administration officials are mulling whether to encourage Greenspan, 79, to continue as Fed chairman for at least a few months beyond the Jan. 31 expiration of his term, according to sources told of the possibility.
That would give the White House more time to broaden the search for possible successors, looking beyond the academic and policy worlds to the corporate world, as they have been urged to do by some financial analysts.
Greenspan did not comment for this article but indicated in a commencement speech Sunday at the University of Pennsylvania's Wharton School that he still intends to leave the Fed early next year. "I have more in common with you graduates than people might think," he said. "After all, before long, after my term at the Federal Reserve comes to an end, I too will be looking for a job."
A short extension might be attractive to Greenspan because if he remains at the helm until May 11, he would become the longest-serving Fed chairman ever, exceeding the 18 years, nine months and 29 days served by William McChesney Martin Jr., from 1951 to 1970.
The law allows a Fed chairman to continue beyond the expiration of his term until a successor is confirmed by the Senate. Thus, if Bush wanted Greenspan to stick around a bit longer, he could just put off nominating a replacement.
Bush's deputy chief of staff, Karl Rove, told Bloomberg News last month that it would be "premature" to announce a nominee this year.
"President Bush believes Chairman Greenspan is doing an excellent job," said White House spokesman Trent Duffy. He declined to comment on whether Greenspan might be encouraged to stay on, saying, "We don't speculate on personnel decisions."
Greenspan is highly regarded in global financial markets and in Washington, but delaying the identification of a successor would carry risks, including prolonging the uncertainty, several Fed watchers said.
"Greenspan is doing such a terrific job, you can see how they would be tempted," said Kevin A. Hassett, director of economic policy studies at the American Enterprise Institute. But, he said, postponing a nomination would send "a negative signal to the markets. . . . It implies that Greenspan is irreplaceable. It implies if we don't have Greenspan, everything will fall apart."
Sen. Richard C. Shelby (R- Ala.), chairman of the Senate Banking, Housing and Urban Affairs Committee, said, "If we could keep Alan Greenspan on for 10 more years, I wouldn't have any qualms, based on his record which has been exemplary overall." But, he added, "an appointment would show decisiveness that [White House officials] are on top of the game, which I'm sure they are."
If Greenspan agreed to stay, it could be seen as "further eroding the barriers that should exist between the White House and the Fed," said Thomas Schlesinger, executive director of the Financial Markets Center, a nonprofit organization that monitors the Fed.
The strategy could create the appearance that Greenspan was in some way being rewarded by the White House for his strong public support of Bush policy priorities such as tax cuts and individual Social Security accounts, said Kenneth H. Thomas, a lecturer in finance at the Wharton School.
The White House's interest in extending Greenspan's run comes as some financial analysts and business leaders have urged administration officials to look for candidates with both his grasp of abstract economic principles and his sense of how the economy evolves in the real world.
Greenspan's fans attribute much of his success to his decades-long experience as a business consultant, which gave him a deeply intuitive understanding of how executives decide whether to invest, hire or raise prices and how financial markets operate.
His predecessor, Paul A. Volcker, highly regarded as the Fed chief who broke the back of double-digit inflation, had worked for Chase Manhattan Bank and did not have a PhD in economics.
By contrast, all of the leading names on the lists of likely Greenspan successors are prominent academic economists, with little or no business experience. That's a source of discomfort for some analysts who praise Greenspan's willingness to question the data, challenge the models and break with economic convention at times.
"There are a number of concerns regarding the choice of an academic Fed chair," said Richard Yamarone, director of economic research at Argus Research Co., an independent financial analysis firm. "Academics tend to reside in 'schools of thought,' with a strict adherence to the theoretical. . . . You cannot execute policy with respect to what should happen. Or what traditional economic theory suggests. [Fed] policy is conducted in the very dynamic real world, with unforeseen shocks and countless outcomes. Far too many to be captured in an econometric model."
A current or former chief executive of a major corporation "would make for an interesting choice," said John J. Castellani, president of the Business Roundtable, an association of such executives, adding that he meant no criticism of the academic candidates.
There is often a difference, he said, "between what the economy is really doing and the theoretical perspective on what it should be doing. . . . A CEO is really at the nexus of monetary policy, demand and the global economy."
That idea sends shudders through economists who remember G. William Miller, a former chief executive with no formal economics background who was Fed chairman for less than two years under President Jimmy Carter, when the average inflation rate exceeded 9 percent.
Miller "was the worst Fed chairman we probably ever had," said William Dudley, chief economist at Goldman Sachs U.S. Economics Research. "It would be nice to have broader experience, but we don't want to hire someone without solid economic grounding."
Fed board members in the past have stayed on the job while awaiting confirmation of a successor. Greenspan himself was chairman "pro tempore" for several months in 1996, after his second term as chairman expired and before he was confirmed for a third; his board term continued throughout.
President Bush and his top aides have said very little publicly about the process of choosing a new Fed chief, even though the administration started compiling names of possible successors three years ago.
For many months, the top of the list has included Harvard economist Martin S. Feldstein, 65, and the dean of Columbia Business School, R. Glenn Hubbard, 47, according to economists and political operatives on Wall Street and in Washington, including several with close ties to the administration. Both have advised Bush.
One name elevated to the top tier recently is Fed board member Ben S. Bernanke, 51, former chairman of Princeton University's economics department and Bush's nominee to become the next chairman of the president's Council of Economic Advisers. Hubbard was the council's chairman in Bush's first term; Feldstein held the job under President Ronald Reagan, Greenspan under President Gerald Ford.
Greenspan, Feldstein and Hubbard have been directors of several corporations. Bernanke has not.
Greenspan also ran his own economic consulting firm, Townsend-Greenspan & Co., Inc., for 20 years before joining the CEA and for 10 years after.
One obvious candidate who is both an economist and a former business consultant is Fed Vice Chairman Roger W. Ferguson Jr. He's a Democrat, though, and therefore considered a long shot.
Greenspan has drawn deeply from his business experience during his nearly 18 years as Fed chief, helping guide the economy and the markets through a stock market crash, two recessions, several international financial crises, the nation's longest peacetime expansion, the 2001 terrorist attacks and other challenges.
One lesson from the Greenspan years for many economists was not that their models should be discarded or that academics should be disqualified; rather, a successful Fed chairman be must be open and flexible.
As former Fed board member Laurence H. Meyer wrote in a recent book about his years on the Greenspan Fed, "While the chairman is willing to play by the rules in normal times, he does not hesitate to depart from them in unusual circumstances." © 2005 The Washington Post Company Advertising Links What's this? LendingTree.com - Mortgage Loans LendingTree.com - official site. Find a mortgage, refinance, home equity or auto loan in your area. Receive up to four loan offers within minutes. When banks compete, you win. www.lendingtree.com Mortgage Loan Rates Lock in today's rate on a mortgage loan at Home Finance of America - your source for great rates, with quality customer support. See what you qualify for and what your payments will be. www.homefinanceofamerica.com Compare Mortgage Rates Refinance your home loan while rates are low. Get up to 4 free, no obligation quotes. www.lowermybills.com