Can Eternal Greenspan Calm a Shaky Market?

By Tony Karon Wednesday, Jan. 05, 2000

Politicians and economists are cheering, but stock traders are eyeing the exits. President Clinton Tuesday appointed Alan Greenspan to a fourth four-year term as Great Helmsman at the Fed, and while his stellar record prompted little opposition, the market appeared more concerned with his next move. Greenspan's early reappointment — his current term expires in June — frees the Fed chairman to make fiscal policy free of any concern that his job may be on the line, and that may mean an interest rate hike designed to slow the economy and head off inflation when the Fed next meets. Fear of a tightening bias sent stock prices plummeting Tuesday, with the Dow losing 359.58 points and NASDAQ suffering a record single-day loss of 229.46 points. Wall Street's pain was shared on Asian and European markets Wednesday, and markets may remain somewhat jittery over the next four weeks ahead of the Fed's February 1 meeting.

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The choice of Fed chairmen may once have been tied to the political orientation of the presidents who appointed them, but Greenspan's legendary success in dealing with crises ranging from the 1987 Wall Street crash to the fallout from the 1998-99 Asian financial crisis has made the position more akin to the military's top brass — a nonpartisan, continuous presence as presidential administrations come and go. Although Al Gore, like most other presidential candidates, warmly applauded the appointment, he may have the most to lose if Greenspan does slow the economy. (George Bush Sr. is reported to believe that he lost to Bill Clinton in 1992 because Greenspan hadn't lowered interest rates to lift the economy out of a recession.) But then, it's an article of faith in today's New Democrat/Compassionate Conservative consensus that even when Greenspan's medicine tastes a little bitter, it's still good for you.