WASHINGTON, June 15 (UPI) -- There was no question that the Senate hearing to reappoint Federal Reserve Chairman Alan Greenspan to a fifth term in office would go without a hitch. The 78-year-old who has served as the nation's top central banker has served under four presidents since 1987, and over the years, he has grown to become a formidable economic figure that goes beyond partisan politics.
So what little public opposition to Greenspan's nomination there was -- such as by Sen. Jim Bunning (R-KY) -- was an exception to the rule, as members of the banking committee from both sides more often rushed to heap praise on the septanarian.
Sen. Paul Sarbanes (D-MD), the committee's ranking member, spoke of Greenspan's "legacy" to the Federal Reserve and the U.S. economy, while Sen. Elizabeth Dole (R-NC) repeatedly talked of how "outstanding" he has been in his position, the current term expiring on June 20.
Having been at the helm of the central bank during the boom years of the late 1990s, Greenspan has also managed to get the economy back on track following the collapse of the dot-com boom and the decline after the terrorist attacks in 2001. As such, Greenspan continued to enjoy for the most part bipartisan support which is often rare in Washington.
But at the same time, senators did not miss the opportunity to pepper the Fed chairman with questions on the domestic economy which in recent months appears to have shown signs of considerable strengthening. As such, most Fed watchers expect the central bank to raise interest rates at the upcoming Federal Open Market Committee meeting scheduled for June 29 to 30. The biggest question, however, is whether the Fed would raise rates by 25 basis points or 50 basis points, given that the key federal funds target rate is as its lowest level in over four decades.
Low interest rates have allowed both consumers and businesses to borrow money cheaply, which has been critical in keeping the economy afloat. There are fears, therefore, that a sharp rise in rates to offset inflationary pressure might hamper growth.
At the hearing, however, Greenspan indicated that he did not see inflation as a major threat, which in turn would reduce the possibility of an aggressive monetary tightening later this month.
"Our general view is that inflationary pressures are not likely to be a serious concern in the period ahead...(so rate hikes are) likely to be measured over the quarters ahead," Greenspan told the committee. He also added that higher energy prices were not a major issue for economic growth yet.
Still, that's not to say there are no downside risks. Greenspan cautioned committee members that the economy is not necessarily completely out of the woods yet, especially when there are a number of downside risks, including the possibility of another terrorist attack.
"Going forward, we must remain prepared to deal with a wide range of events. Particularly, notable in this regard is the fortunately low, but still deeply disturbing, possibility of another significant terrorist attack in the United States," Greenspan stated.
At the same time, Greenspan said that the performance of the U.S. economy has been "most impressive in recent years in the face of staggering shocks that in years past would almost surely have been destabilizing," with help from solid economic policies pursued by the central bank and the government.
Oddly enough, though, senators barely touched upon the fact that Greenspan is unlikely to be able to carry out his full term, even with Senate approval for serving another four years, which goes on until June 2008. For the chairman must be a member of the Federal Reserve Board of Governors to serve, and his seat on the board expires in January 2006. The 14-year term as a board member, moreover, cannot be extended, nor can an individual serve for more than one term. Granted, it is possible that this particular regulation may change to accommodate Greenspan, but many analysts argue that that is unlikely. If that is indeed the case, then a new Fed chairman must be appointed by the beginning of 2006.
So given that Greenspan's tenure will finally draw to a close, Wall Street will be more anxious to figure out who would succeed him more than following Tuesday's nomination hearing closely. To be sure, Greenspan remains sprightly and is a fixture on Washington's social scene together with his wife, television reporter Andrea Mitchell.
Yet at the same time, Greenspan was treated for prostate cancer last year, and he has cut back on his travels in recent years, both within and outside the United States. For instance, he gives more speeches via satellite television rather than by making a personal appearance. He also certainly does not need the paycheck from the Fed, as he is already fairly well off financially, having owned his own financial advisory company until assuming his role at the helm of the Fed. Moreover, payment he could receive from advisory roles in the private sector would be far greater, and require much less responsibility and stress.
But by keeping Greenspan on at least for another two years, the position of Fed chair will be spared for the most part from the political debates that will only intensify as the Democrats and Republicans gear up for the presidential elections in November.