As Fed meets, a buzz about Greenspan future

As the Federal Reserve meets today, the speculation in the financial community is not entirely about where interest rates will go. It's also about whether Alan Greenspan will go.

With the economic recovery still in a tender phase, the Fed's policymaking committee is widely expected to leave today's low, low interest rates unchanged. Far less certain are the plans of Mr. Greenspan about his own career.

On Wall Street, some suspect that the 15-year Fed chairman may bow out before his term ends in 2004, allowing a successor to be confirmed before a presidential election campaign gets into full swing. Others say he loves the job so much he might not only stick out his term, but also seek reappointment – and set a record as the longest-serving Fed chief.

America's financial community has reached a high level of comfort with Greenspan. It doesn't want him to disappear from the helm of the Fed. A retirement announcement would likely prompt a downdraft in financial markets, at least briefly.

But for all his popularity – and a national renown unparalleled by his predecessors – his tenure has occasionally caught criticism.

Just yesterday, for example, economist Brian Wesbury opined in the Wall Street Journal that "excessively tight Federal Reserve policy" was to blame for the recent recession, with 1.8 million lost jobs and a record drop in corporate profits.

Despite widespread speculation over Greenspan's departure, if anybody knows the date, he or she (even his wife) isn't saying. It's a well-kept secret.

Greenspan has been much more open on monetary policy. He recently signaled that he sees inflation risks as minimal and the strength of the recovery as uncertain. So, he said, the Fed will have "ample opportunity to adjust policy [raise rates] to keep inflation pressures contained once sustained, solid economic expansion is in view."

Mickey Levy, chief economist at Bank of America, disagrees. He would like the Fed to start boosting short-term interest rates to ward off inflation. Mr. Wesbury echoed that view yesterday.

But the already remote likelihood that the Fed would raise rates diminished further Friday when the Bureau of Labor Statistics announced that the unemployment rate jumped to 6 percent in April from a 5.7 percent rate in March.

The jobless rate has been below 6 percent since August of 1994. The unemployment rate usually rises for some months after a recession has ended. And that's what economists expected now that last year's slump has passed. Businesses first step up production with their present employees, and only later hire new workers if they can't manage to keep up with demand.

Mr. Levy also agrees with the view that Greenspan's overall supervision of monetary policy since he took his post in the summer of 1987 has been "excellent."

The White House is likely on the same wave length. Ties between Greenspan and the Bush administration "couldn't be better," says Harald Malmgren, a Washington economic consultant.

One reason is that Greenspan and Vice President Dick Cheney have been close friends since their days together in the administration of President Ford, 30 years ago. Mr. Cheney helps keep the president informed of Greenspan's views on the economy and monetary policy.

Both the White House and Greenspan see a "wobbly recovery," with the growth rate of the gross domestic product, the nation's output of goods and services, slowing from a husky 5.8 percent annual pace in the first quarter to about a 2 to 2.5 percent in the current quarter. Both see no acceleration in inflation.

By contrast, Greenspan faced sharp criticism from the first Bush White House, in 1992, for failing to add enough fuel to a "jobless recovery."

Malmgren suspects Green-span might hang on for another four-year term, hoping to outlast William McChesney Martin, who served as Fed chairman from 1951 to 1970.

There are some hints that this may be his ambition.

When the White House sends over names for new appointments to the Fed's Board of Governors, Greenspan sends them back with suggestions he considers more suitable. His recommendations have been experts in key sectors of the economy or of finance, not possible rivals.

Also, Greenspan is paying close attention to internal personnel matters at the Fed. That's probably not the action of a man considering retirement soon.

"Greenspan seems to be enjoying his experience at the Fed," notes Thomas Schlesinger, executive director of Financial Markets Center in Philomont, Va.

From the standpoint of history, Greenspan has made the Fed and monetary policy more transparent to the public as well as to markets. Policymakers have, for some years, announced their monetary decisions immediately after meeting. It has just decided also to release immediately how the Fed's 12 policymakers voted.

W. Lee Hoskins, a former Fed policymaker, would like to see further steps in this direction – such as releasing meeting transcripts perhaps within four years – far sooner than at present.