- The Washington Times - Wednesday, January 5, 2000

President Clinton, happy with the economy's strong performance as elections approach, yesterday nominated Alan Greenspan to a fourth term as chairman of the Federal Reserve. But the move did little to calm tumultuous markets.

The appointment which drew raves from Republicans and Democrats, Wall Street and Main Street only served to heighten fears in the stock market that interest rates are headed sharply higher as the Fed moves to head off accelerating growth and higher inflation this year.

The Dow Jones Industrial Average plummeted 360 points and the technology-driven Nasdaq composite index nose-dived a record 230 points as markets braced for a rate increase of as much as a half point in the next month.

Markets around the world plunged in sympathy, with investors everywhere foreseeing higher rates as growth picks up worldwide this year.

The contrast could not have been greater between the wreckage on Wall Street and the calm and harmonious note struck in the Oval Office as Mr. Clinton and the 73-year-old Fed chairman traded compliments, joked and marveled at the stamina of the long-running U.S. expansion.

"The United States is enjoying an extraordinary amount of economic success," said Mr. Clinton. Despite some sharp disagreements on budget policies, the president credited Mr. Greenspan's deft leadership at the Fed since he first was appointed by President Reagan in 1987, as well as today's "stunning technological innovations" and the discipline of American businesses, workers, Congress and his administration.

Mr. Clinton stressed what he hopes will be his greatest legacy and the best selling point for Vice President Al Gore as he seeks the presidency: the improvement of living standards for Americans both rich and poor during the 1990s expansion.

"This chairman's leadership has been good not just for the American economy and the mavens of finance on Wall Street, it has been good for ordinary Americans," he said, noting that welfare rolls have been cut in half and unemployment is at record lows for blacks and Hispanics.

Mr. Greenspan said he never stops being intrigued and challenged in his job, with his hands on the controls of the world's largest economy, and that is why he declined the opportunity to retire and pursue more lucrative work in the private sphere instead of accepting another four-year term.

"It's like eating peanuts. You keep doing it, keep doing it, and you never get tired, because the future is always ultimately unknowable," he said, adding jokingly that most economists never have to live with the consequences of their actions the way he does.

Even as he spoke, markets were falling on fears that the Fed will raise interest rates by as much as a percentage point this year, now that the central bank is no longer hesitating because of fears about economic disruptions from the year-2000 computer bug.

Stocks took their biggest tumble since August 1998 in a sell-off that began Monday. The Dow fell 3.2 percent to 10,998. The Nasdaq crumbled by 5.6 percent to land at 3,901 the biggest drop in the history of the index.

"It's fear and anxiety about interest rates, that the economy is too robust, and the Fed will be forced to act," said George Cohen, chief investment officer at Cohen, Klingenstein & Marks. "If interest rates are higher, the valuation of stocks should be lower."

Stock markets in Europe, Asia and Latin America also suffered huge declines as investors woke to the likelihood that inflation and interest rates are headed higher as growth picks up on nearly every continent and puts pressure on the world's resources.

"There is a synchronized growth around the world," said Byron Wien, chief economist with Morgan Stanley Dean Witter in New York. "Europe is doing better, Asia is doing better, the United States is continuing on her growth path."

While growth generally is good for business and profits, Mr. Wien said stock prices reflect unrealistic expectations about the ability of businesses to perform in the future, and do not reflect the higher rates that accompany growth.

"Companies are being priced on the basis of possibility, not on the basis of reality, and I think that is a very dangerous phenomenon," he said.

Mr. Greenspan did not take the opportunity yesterday to add his voice to the stock market's many critics.

His confirmation by the Senate early this year seems all but assured. Republican leaders, including Texas governor and leading GOP presidential candidate George W. Bush, have called for his reappointment.

"Alan Greenspan has been the finest in a long line of great central bankers," said Senate Banking, Housing and Urban Affairs Committee Chairman Phil Gramm. The Texas Republican said he will hold a hearing on the nomination this month.

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