February 1, 2006
WASHINGTON — In the last major piece of business for retiring Chairman Alan Greenspan, the Federal Reserve pushed borrowing costs to the highest point in nearly five years Tuesday and hinted another rate increase was possible.
Shortly after the Fed's announcement, the Senate — showing broad bipartisan support — approved on a voice vote Ben Bernanke's nomination to be the 14th chairman of the central bank.
Bernanke, 52, will be sworn in this morning in a private ceremony at the Fed's marble headquarters.
That will make the historic changing of the guard at the Fed complete.
Greenspan, 79, ends an 18 ½-year run, making him the second-longest-serving chairman of the central bank. He presided Tuesday over his 149th meeting of the Federal Open Market Committee (FOMC), the Fed panel that meets eight times a year to set interest rates.
It was his 1,124th Fed board meeting overall.
A standing ovation greeted Greenspan as he entered to preside for the last time at the long conference table. The group, as expected, raised interest rates again, boosting the federal-funds rate by a quarter percentage point to 4.50 percent.
To mark his last day, Greenspan, a die-hard sports fan, was given an old-fashioned baseball glove signed by the bank presidents. He also received his board chair with his name engraved on a brass plaque, and the flag that flew over Fed headquarters Tuesday.
In return, Greenspan gave a pep talk, urging Fed employees to keep up the good fight to protect the value of the dollar against the ravages of inflation.
"We have a very special mission," Greenspan told about 1,500 employees who filled the headquarters' two-story marble atrium.
"We are in charge of the nation's currency, and the central bank, because of that, is involved in everyone's daily lives. We are the guardians of their purchasing power," Greenspan said.
Although he will turn 80 in five weeks, Greenspan has no plans to retire.
He will return to what he did during a long career in private business, running his own economic-consulting firm, Greenspan Associates, in Washington.
But a little history was made on his last day at the Fed.
The famously secretive institution relented and allowed news photographers and television cameramen in for the first time at an FOMC meeting to record Greenspan's final session — a fitting tribute for someone who worked to make the central bank less secretive.
In opting to boost rates Tuesday, Fed policy-makers said "the expansion in economic activity appears solid" even though recent economic barometers "have been uneven."
Inflation, they said, remains a concern. "Elevated energy prices have the potential to add to inflation pressures."
In response to the Fed's move, commercial banks raised their prime lending rates — for certain credit cards, home-equity lines of credit and other loans — by a corresponding amount to 7.50 percent.
The increases left borrowing costs at their highest level in nearly five years.
Many economists believe the Fed probably will boost the funds rate at least one more time — to 4.75 percent — at its next meeting March 28, the first session Bernanke will lead.
A few, however, believe the funds rate could climb to 5.50 percent this year, a move some analysts think is necessary to keep inflation under control.
Greenspan turns over to Bernanke an economy that is in good shape but faces challenges.
Questions persist about whether the housing market will continue to gradually decline or even crash. No one knows whether foreigners will maintain a hearty appetite for investing in the United States and continue to finance ballooning budget and trade deficits. Energy prices pose another wild card.
"Greenspan's shoes are very large and difficult to fill. If anybody is up to the task, Ben Bernanke is the guy," said Charles Ballard, economics professor at Michigan State University.
Bernanke, chairman of the White House's Council of Economic Advisers, is a former Fed governor and economics professor.
He is considered one of the country's foremost economic thinkers and has written extensively about the Great Depression.
Copyright © 2006 The Seattle Times Company
