A day after boosting borrowing costs for millions of Americans, Federal Reserve Chairman Alan Greenspan won Senate confirmation today for a fourth term as head of the nation's central bank.
| Greenspan appears to have the trust of Washington, Wall Street and the American public
The Senate voted 89-4 to approve the nomination of Greenspan,
73, for a four-year term that will run into 2004.
Greenspan was praised as the "greatest central banker in the
history of the world," by the Senate Banking Committee chairman,
Sen. Phil Gramm, R-Texas, and President Clinton's nomination of the
Republican economist enjoyed bipartisan support.
A small group of liberal senators who opposed the nomination
argued Wednesday that the Fed is too secretive and Greenspan has
been overly worried about inflation and insensitive to the impact
higher interest rates have on American families.
But Greenspan was praised by supporters as a key architect of
the current 107-month long economic expansion, which this month
broke the record previously held by the 1960s expansion as the
nation's longest period without a recession.
Greenspan's sound advice on economic matters "has given us the
longest expansion in U.S. history. ... I very enthusiastically
endorse this nomination," said Senate Minority Leader Tom Daschle.
Just as the Senate was taking up debate on Greenspan's
nomination on Wednesday, the Fed announced that it was increasing
its target for the federal funds rate, the interest that banks
charge each other, by a quarter point to 5.75 percent, the fourth
increase since last June.
Greenspan, who was first picked for the Fed job by Ronald Reagan
in 1987, was renominated in 1992 by George Bush and nominated for a
third term by Clinton in 1996 and the fourth term earlier this
In a speech Wednesday night, Clinton praised Greenspan and said
he helped sustain the long economic growth by not intervening too
aggressively in recent years to boost interest rates.
While traditional economic theory said the rapid growth would
bring high inflation, "he had the courage to look at the evidence
over the arguments of the past to see that something fundamentally
different was going on in our economy," Clinton said.
Sen. Byron Dorgan, D-N.D., praised Greenspan for his "great
devotion to public service," but said he would vote against the
nomination because he believed Greenspan and the Fed were fighting
an inflation threat that does not exist.
Sen. Tom Harkin, D-Iowa, complained during the debate about the
Fed's secrecy and argued that the four rate hikes since June were
hurting the economy.
"A little nick here, a little nick there; pretty soon you're
bleeding to death," Harkin said.
Private economists warned that the Fed's latest rate increase on
Wednesday is likely to be the first of several this year as the
central bank fights to slow the economy to a more sustainable rate
and keep inflation at bay.
"The Fed wants to bring this high-flying economy down to a soft
landing," said Richard Yamarone, an economist at Argus Research
Corp. "The rate increases so far haven't really taken a toll on
the economy, especially the consumer sector."
The Fed action to boost its target for the federal funds rate,
the interest that banks charge each other, was quickly followed by
announcements from major banks around the country that they were
raising their prime lending rate a similar quarter point to 8.75
percent, the highest level for this benchmark consumer and business
rate since late 1995.
Analysts said the unrelenting strength of the economy would
likely prompt follow-up rate increases at the Fed's next meetings
on March 21 and May 16 and possibly a seventh boost at the June 28
In addition to boosting the federal funds rate, the Fed
increased its largely symbolic discount rate, the rate the Fed
charges to make direct loans to banks, by a quarter point to 5.25
In the statement announcing the Fed decisions, the policy-makers
said they remained concerned that the strong economy and tight
labor markets will produce rising wage demands that will not be
offset by gains in productivity.
"Such trends could foster inflationary imbalances that would
undermine the economy's record economic expansion," the Fed said
in explaining its decision.
Voting no were Dorgan, Harkin and Democratic Sens. Harry Reid of
Nevada and Paul Wellstone of Minnesota.
Not voting were Sens. Barbara Boxer, D-Calif.; Conrad Burns,
R-Mont.; Chuck Hagel, R-Neb.; Jon Kyl, R-Ariz.; John McCain,
R-Ariz.; Jack Reed, D-R.I.; and Ted Stevens, R-Alaska.