WASHINGTON - Sticking with Alan Greenspan as Federal Reserve chief was shrewd politics for George W. Bush, but analysts said the U.S. president still faces hurdles in his key domestic aim of reviving the economy. A day after Bush told reporters Greenspan should get another term at the helm of the U.S. central bank, the Fed chief signaled he would happily accept renomination. "If President Bush nominates me, and the Senate confirms his choice, I would have every intention of serving," Greenspan said in a statement on Wednesday. "The president and I have not discussed this but I greatly appreciate his confidence." The acceptance came as the 77-year-old chairman recovered at home from prostate surgery that the Fed said went smoothly and was not a sign of a serious health problem. The move by the White House to quell uncertainty about Greenspan's future helped stoke a rally in stock prices, and the Nasdaq hit its highest level in nearly five months on Wednesday.
"Greenspan has been and is an outstanding central banker," said Glenn Hubbard, who resigned in February as chairman of Bush's Council of Economic Advisers. Hubbard said he had no direct knowledge of what led to Bush's decision but many political analysts said the president clearly had an eye on his re-election bid in November 2004. "A growing economy is the ticket to Bush's re-election and Greenspan's presence could be one part of that," said Scott Reed, a Republican political consultant. "Markets react to stability and Greenspan is the epitome of stability in Washington, D.C.," he added.
WILL HISTORY REPEAT ITSELF?
With the reins of monetary policy firmly in Greenspan's hands for the foreseeable future, the spotlight is now on Bush's push for new tax cuts, the core of his economic strategy. The package totaled $726 billion when proposed by Bush but has since been cut back sharply in Congress. Ironically, it was Greenspan who lent momentum to efforts to shrink the package after he worried publicly in February about budget deficits, already at record highs, and said fresh tax cuts weren't economically necessary. But Bush chose not to let the rift escalate into a feud that might have mirrored one that erupted between his father, President George Bush, and Greenspan in the early 1990s. His father, who lost re-election in 1992 to Bill Clinton in a campaign that hinged on the economy, sparred with Greenspan not over tax cuts but over what the former president viewed as overly strict monetary policy. "(George W.) Bush is better served by having a cooperative relationship with Greenspan," said William Niskanen, chairman of the Cato Institute, a libertarian think tank. Bush now finds himself in strikingly similar circumstances to those his father faced in the run-up to the '92 campaign: High approval ratings in the aftermath of victory in an Iraq war combined with the problem of a stubbornly weak economy. Many of Bush's conservative allies were cool to the idea of Greenspan's reappointment after the Fed chief angered them by questioning the need for tax cuts. Significantly, Bush's vote of confidence comes early on in the process. The chairman's term does not expire until June 2004. Still, the endorsement of Greenspan comforted edgy investors who have grown to trust the veteran Fed chief, despite some recent criticism about the way he handled the 1990s stock boom. He is also popular on Main Street. "It serves a useful political purpose for him to ask Greenspan to stay on," Niskanen said. For Greenspan, a fresh term would offer a chance to bring the economy back from the bust that followed the 1990s boom -- the years of plenty that catapulted Greenspan to fame. "He loves the job and he's healthy," said former Fed Gov. Laurence Meyer. "He would be committed to handing over the economy to a successor in better shape than it is now."
NOT A CURE-ALL
Analysts said the Greenspan announcement was far from a panacea for Bush in his efforts to build public confidence in his own stewardship of the economy. When growth failed to stage a convincing rebound last year, Bush cleared out top tier economic officials, including his Treasury secretary. Even Bush's advisers concede restoring growth will be their biggest challenge now that the Iraq war is winding down. Administration officials are scrambling to salvage as much of Bush's tax cut package as possible after the House scaled it back to $550 billion and the Senate set a $350 billion cap. Bush has seized on the $550 billion figure as the minimum needed to pump up the listless economy, and he is pressuring lawmakers to approve it. Some critics of the tax package, though, think Bush should be careful what he wishes for because a large tax cut may push up the deficit and potentially drive up long-term interest rates. For their part, administration officials counter that economic growth is what will return the budget to balance.//