Greenspan's Last Day Likely Jan. 31

Greenspan's Last Day Likely Jan. 31
Sep 09, 2005
By MARTIN CRUTSINGER
AP Economics Writer
WASHINGTON

The Federal Reserve decided to shorten a key monetary policymaking meeting in late January in what amounts to an acknowledgment by the secretive institution that Chairman Alan Greenspan is leaving then.

The Fed said in a terse announcement Friday that the discussions of the Fed's interest-rate setting panel would take place on Jan. 31 only, rather than during a two-day time frame of Jan. 31-Feb. 1. The idea would be that the meeting would not overlap the departure of Greenspan the arrival of his successor.

"This change avoids a meeting that spans the terms of two chairmen," the central bank said, confirming that Jan. 31 likely would be Greenspan's last day.

The three names mentioned most often as possible Greenspan successors are Ben Bernanke, who took over as chairman of the president's Council of Economic Advisers this year after having served as a Fed board member; Columbia University professor Glenn Hubbard, Bush's first CEA chairman, and Harvard economics professor Martin Feldstein, who was CEA chairman during the Reagan administration.

The brief announcement represented the most direct confirmation yet by the Fed that Greenspan, who has served 18 years at the head of the central bank, will be leaving at the end of January. There was little doubt of that as Greenspan attended a recent Fed meeting in Wyoming.

While officials have indicated this was the most likely scenario, some market participants have speculated that Greenspan might be persuaded by President Bush to stay at least for a few months beyond when his board term ends.

Bush last year appointed Greenspan to a fifth four-year term as Fed chairman. While that term would not end until June 2008, Greenspan had told friends that it was his desire to leave the Fed when his board term ended on Jan. 31, 2006.

The Fed announcement on Friday appeared to be an effort to clear up any legal uncertainty about Greenspan's power to act at the first meeting of 2006 by having it end on Jan. 31 rather than Feb. 1, when his term as a board member would have been over.

The Fed statement said that in keeping with the practice of past Fed chairmen, Greenspan would attend the January meeting.

Past Fed chairmen including Greenspan's immediate predecessor, Paul Volcker, have attended their last board meetings so that the panel would have its presiding officer. However, other Fed board members have followed the practice of skipping their final meeting so that they would not be privy to any market-moving information when leaving government service.

Many analysts saw Friday's announcement as an effort to clear up any legal uncertainty and also as a signal that Greenspan intended to be in charge at least through the first meeting of the new year.

There has been growing speculation that the Fed may decide to pause in its credit-tightening campaign and not raise interest rates at its next meeting on Sept. 20 and possibly also refrain from a rate hike at the Nov. 1 meeting to assess how much of a blow the economy has been dealt by Hurricane Katrina and the surge in energy prices.

The Fed could resume raising rates by quarter-point moves at the Dec. 13 meeting and at the Jan. 31 meeting and have the federal funds rate at 4 percent by the time Greenspan's board term ends.

Many analysts believe 4 percent may be the point at which the Fed will decide it has achieved its goal of pushing interest rates to neutral, where the funds rate is not stimulating or slowing economic growth.

"This will give them a little more time to get to neutral before the new Fed chairman takes over" by signaling that Greenspan will be presiding at the January meeting, said David Wyss, chief economist at Standard & Poor's in New York.

David Jones, head of DMJ Advisors, a Denver-based consulting firm, said that Friday's announcement sends the message that Greenspan will be in charge at least until Jan. 31 and buys time for the administration, which faces the need to fill vacancies on the Supreme Court and deal with the cleanup from Hurricane Katrina, to search for a successor.

"There has been nothing from the administration that conveys any sense of urgency in replacing Greenspan," Jones said. "The administration does not want to undercut Greenspan or make him a lame duck."
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