Why Greenspan Could Be Unsinkable

With the '96 campaign in full cry and the challengers jockeying for position, the smart money is bucking the conventional wisdom and betting on the incumbent. No, not Bill Clinton. Alan Greenspan.

The Federal Reserve Board chairman's term expires on Mar. 2, 1996, just eight months before Election Day. The timing creates a dilemma for President Clinton and an opportunity for Greenspan. White House aides say Clinton would love the chance to name his own Fed boss to replace Greenspan, who has hiked interest rates seven times in a year. But Clinton stands little chance of naming a Democrat to the powerful post, which must be confirmed by a GOP-run Senate that's fast writing off Clinton as a lame duck. "The Republicans may refuse to hold hearings until after the election," says ex-Fed Governor Wayne D. Angell, Bear, Stearns & Co.'s chief economist and adviser to Senate Majority Leader Bob Dole (R-Kan.).

What's Clinton to do? Fed officials and even some Presidential advisers believe he'll be forced to name Greenspan to a third four-year term--or keep the central banker on until after the election, when Clinton or his successor will have the clout to name a new Fed boss. First chosen by Ronald Reagan in 1987, Greenspan was renominated by George Bush in 1991, but his confirmation was delayed by the Democratic-controlled Senate for six months. Fed insiders predict a similar stall next year if Clinton decides to dump Greenspan. "The Republicans smell blood," says one.

A FEW LOBS. For his part, the savvy Fed chairman, who shows every sign of wanting to stay put, is doing what he can to make the President feel comfortable. Although a lifelong GOP conservative, Greenspan has been bonding with the Clinton Democrats from the Administration's first days. Remember him sitting next to the First Lady during the 1993 State of the Union address? He often played tennis with former Treasury Secretary Lloyd M. Bentsen. And recently, he did a hard sell for the President's first Mexico rescue package.

But he hasn't forgotten his GOP friends. On Jan. 10, he gave them a belated Christmas gift: a painless way to cut the budget $30 billion a year. Noting that the consumer price index overstates inflation, Greenspan told Congress that a recalculated CPI would cut cost-of-living hikes for Social Security and curb income-tax exemptions that rise with inflation. Although he has long favored changing the index, it was the first time the Fed chief put a price tag on the savings. Democrats saw it as a blatant boost to the GOP, struggling to find $1.3 trillion to balance the budget by 2002. "Shameless politicking," snaps one Clintonite.

WHO ELSE? Even if Clinton were determined to make a change, however, he lacks choices who could pass muster with Greenspan's many fans in the financial markets. Treasury Secretary Robert E. Rubin, an ex-Wall Streeter, has told friends he's not interested. Treasury Under Secretary Lawrence H. Summers, at 40, is considered too young--plus Congress blames him for not anticipating the Mexico crisis. The markets distrust Fed Vice-Chairman Alan S. Blinder as an inflation dove. New York Federal Reserve Bank President William J. McDonough has the credentials, but Clinton doesn't know him.

With no obvious successor in the wings, the President could do worse than stick with Greenspan, who has managed a strong economy during Clinton's tenure. If Greenspan keeps the expansion going at a moderate pace without rising inflation for another year, the President might even win praise for staying the course. And that's certainly a better outcome than losing a nasty fight with the Senate and letting a Republican President choose the next Fed chairman.

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