- The Washington Times - Wednesday, April 23, 2003

President Bush yesterday set aside past disagreements about tax cuts and said he supports the reappointment of Federal Reserve Chairman Alan Greenspan.
The 77-year-old Fed chairman, who was in the hospital for a routine surgery yesterday, has not said he wants to stay beyond the expiration of his term in June 2004. But Fed-watchers believe he wants to remain at the helm of the central bank until an economic recovery is firmly in place.
The stock market rallied strongly after Mr. Bush's noon endorsement of the Fed chairman's 15-year stewardship over the world's largest economy. The president told reporters at the White House, "I think Greenspan should get another term."
The Dow Jones Industrial Average jumped 156 points to 8,485, in a broad rally that pushed all the major stock indexes to their highest levels since January. The stock advance also was stoked by improving profits at major corporations, including Pfizer Inc. and American International Group.
The chronically lagging stock market and declining economy this year surprised and troubled Mr. Greenspan and other Fed governors, who had expected the economic recovery from the 2001 recession to be well-entrenched at this point.
In his last appearance on Capitol Hill, Mr. Greenspan blamed the economic muddle on uncertainties and anxieties raised by the war with Iraq, including a spike in oil prices to near-record levels in February.
The Fed chairman predicted that the economy would quickly rebound once the war was resolved and a steep decline in oil prices and rally in stocks in the first days of the war, when victory appeared at hand, seemed to bear him out.
But since that time, the improving trend has stalled amid signs that joblessness is rising and businesses remain reluctant to hire and spend in a way that would sustain the economic recovery.
"The military action and the fall of [Iraqi dictator] Saddam Hussein's regime have not produced signals that business investment is about to surge, or that economic growth is about to take off," said Robert Parry, president of the Fed's San Francisco bank, in a speech yesterday.
He said the Fed may need to cut interest rates further from levels that already are the lowest in four decades, to spur the flagging recovery. The Fed's rate-setting committee meets in two weeks.
Mr. Greenspan and other Fed officials have said that it is difficult to get a clear reading of how the economy is faring because of the wild swings in economic indicators in response to the war and extreme weather conditions this year.
The Fed chairman cited the war-induced economic fog as his reason for disagreeing with the White House on the need for tax cuts. He urged Congress to hold off approval of Mr. Bush's $726 billion plan to see if the economy rebounded once the war was over.
Mr. Greenspan's advice was influential among some Senate Republicans who joined with Democrats to slice Mr. Bush's proposed tax cut in half, arguing like the Fed chairman that they should keep a lid on burgeoning budget deficits.
The White House's support for Mr. Greenspan was rarely in question despite the split and sporadic criticism of Mr. Greenspan among Republican economists who believe the Fed should be acting more aggressively to prevent a fall back into recession.
Bush officials, who recently agreed to pare the tax cut to $550 billion, have minimized Mr. Greenspan's opposition to the tax cut. Those officials stressed that the Fed chairman supported Mr. Bush's proposal to eliminate dividend taxes, though he said it should be offset by spending cuts so as not to increase the deficit.
But Fed-watchers said Mr. Greenspan's decision to part company with the president on such a sensitive issue was a sign that he may be considering retirement.
He is becoming less "political" and asserting his independence, with an eye to securing his legacy as one of the Fed's most respected and longest-serving chairmen, said Diane Swonk, chief economist with Banc One.
"Greenspan's got to be a little edgy about the economy at the moment, but he's still got a little time" to decide if he wants to retire at the end of his term next year, she said.
Ms. Swonk is optimistic that a strong economic recovery will be in place by the end of the year, but she predicted that Mr. Greenspan will not bow out until he sees "a stock market rally that really gets traction."
Mr. Greenspan presided over the longest economic expansion in history during the 1990s, but his term has been marred by one of history's worst bear markets, which started when the technology-stock bubble burst in March 2000.
The dramatic decline in stocks has taken a toll on the confidence of business executives and their willingness to spend and hire creating a drag on the economy that the Fed chairman will want to be sure is over before he leaves office, Ms. Swonk said.
Mr. Parry said that, while he doesn't know how long Mr. Greenspan wants to remain chairman, "I know he loves his job, and I know … he has as much energy, drive and interest as he had 10 or 15 years ago."

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