Speculation Rises: Greenspan to Leave?
THERE is increasing speculation among ``Fed watchers'' that Alan Greenspan will resign as chairman of the Federal Reserve this year. His term officially ends in 1996.
Richard Salsman detects a ``summing up'' tone in Mr. Greenspan's testimony to the Joint Economic Committee Monday, with such phrases as, ``We have achieved.... We have accomplished.... '' These may indicate the chairman's desire to highlight the Fed's economic successes before departing, the consulting economist speculates. Mr. Salsman is with H. C. Wainwright & Co. Economics Inc., a Boston group.
Paul Kasriel, a keen Fed observer in Chicago, notes that the economy is at present in good shape, with a combination of low inflation and vigorous growth. ``From this point on, the risk is that things will get worse in these variables - not better,'' says Mr. Kasriel, an economist with Northern Trust Company. ``Greenspan may figure, `Why not let it go wrong on someone else's watch, not mine?' I would not be surprised to see him step down sometime this year.''
Another factor put forward as a reason for Greenspan to leave is the anticipated arrival of two Clinton appointees on the seven-member Federal Reserve Board. David Mullins, vice chairman of the Board, announced Tuesday that he would be resigning Feb. 14 to become a partner in a money-management business. The term of another governor, Wayne Angell, expires next Wednesday.
News reports indicate that President Clinton's economic advisers would like to see George Perry, a Brookings Institution economist, fill one of the slots opening up. Mr. Perry is considered likely to lean more toward economic growth than the two departing anti-inflation hard-liners.
``Perry's no Angell when inflation tempts,'' Salsman puns.
Mr. Clinton isn't expected to appoint any aggressive populists as Fed policymakers. That would frighten bond investors, sending long-term interest rates higher. But the president's appointees may be somewhat more liberal than the current lineup of Republican Fed officials. So Greenspan may find more governors voting against him when the policymaking Federal Open Market Committee (FOMC) has its sessions about every five weeks. That may further encourage Greenspan to leave, Salsman says.
Fed governors have 14-year terms. However, few stay that long, most seeking better pay in the private financial world. Others are appointed to fill out the terms of those resigning. Therefore, during his four-year term in office, a president usually appoints more than two governors.
Clinton is getting the opportunity to make changes at the Fed earlier and more rapidly than usual, notes Erich Heinemann, an economist with Ladenburg, Thalmann & Co., a New York brokerage house.
The FOMC was meeting yesterday and today in Washington. Most analysts expect no change in monetary policy at this session. ``The Fed is going to do as little as possible,'' Mr. Heinemann says.
Greenspan implied Monday that the Fed would raise short-term interest rates as a pre-emptive strike against revived inflation. But he didn't indicate when or by how much.
In March, and by 0.5 percent, guesses David Munro, an economist with High Frequency Economics in New York. By then, he reasons, the Fed will have a clearer idea of whether the fourth-quarter boomlet in the economy has continued into 1994. He figures that Greenspan will move gradually and cautiously to tighten monetary policy, perhaps boosting the key Federal funds rate - the interest commercial banks charge each other on overnight loans - by another 0.5 percent to 4 percent in the fall.
Munro was an economist on the staff of the Council of Economic Advisers in the mid-1970s, when Greenspan was chairman. He recalls Greenspan pounding the table and saying that volatile policymaking was a source of cyclical volatility - that is, the economy growing or shrinking too rapidly.
Economists don't expect a small shift in the short-term rate to slow the economy much, though it could hit stock and bond prices. But even Clinton doesn't sound alarmed. He suggested to reporters at the White House that low long-term rates - which the Fed does not control - were more crucial than short-term rates.