President Bush has finally acted to reappoint Alan Greenspan to a second four-year term as chairman of the Federal Reserve Board. But that doesn't mitigate the unfortunate impression created by the Administration's prior delay in announcing the occupant of what is arguably the second-most-powerful position in the nation. At a time when the recovery has hardly begun, the Administration's dilatory behavior has caused uncertainty in financial markets and bred rumors that it is trying to undercut Greenspan's leadership role within the Fed and pressure him to ease monetary policy further. This is neither what the economy needs nor what Greenspan deserved.
No one can gainsay the effectiveness of the Fed's performance under Greenspan. Its quick and decisive response to the 1987 stock market crash provided succor to a badly wounded financial system and laid the groundwork for the recovery that followed. The Greenspan Fed also has brought new skill to the art of economic fine-tuning: Were it not for the Persian Gulf crisis, the Fed might well have succeeded in engineering a soft landing for the economy. Presiding over a more fractious Fed than that of his predecessor, Greenspan has been able to achieve a prudent balance between the Fed's long-term commitment to reducing inflation and the monetary needs of a growing economy.
All of these qualities and more will be needed in the months and years ahead. The integration of world financial markets, the continuing savings-and-loan debacle, and the pending reform of the banking system will continue to complicate the formulation of monetary policy. So, too, will the newfound conservative credit policies of lending institutions and the growing importance of nonbank lenders. Most of all, in an election year, the financial markets must be confident that an independent Fed will remain steadfast in its commitment to price stability and will resist political pressures to ease money unless economic conditions truly warrant such a move. One of the Greenspan Fed's greatest assets is the fact that it already has earned such confidence.