John Snow as Treasury secretary and Alan Greenspan as the unflappable Federal Reserve chairman make a perfect double act. Snow says what he pleases, and Greenspan keeps the markets from falling apart.
The mere fact that the show is still running is a surprise to many Washington pundits. Expectations that Snow would survive George W. Bush’s Cabinet makeover were not high. Several major news organizations reported that White House chief of staff Andrew Card was gunning for the Treasury secretary’s job and that Card gets what Card wants.
They were wrong. Bush asked Snow to stay on at Treasury, and Snow agreed. According to one theory, Card failed to get Greenspan’s blessing.
So far, Greenspan has given Bush everything he could ask for with an accommodative monetary policy. But the prospects for further rate hikes in 2005 are moving the plot along. If weakness in the dollar sparks a pickup in inflation, analysts worry that the Fed chief could abandon his measured approach and push rates aggressively higher to prop up the greenback.
Greenspan signaled his concern with the weak dollar in November, when he said, “It seems persuasive that, given the size of the US current-account deficit, a diminished appetite to adding to dollar balances must occur at some point.” While the Fed chief did not predict a dollar crisis, he said net claims against US residents could not continue to increase forever at their recent pace.
Analysts doubt the Fed would act to defend the dollar, and they note that its rate hikes to date have done little to steady the greenback. Greenspan could have his hand forced, however, if Snow lets the dollar’s slide get out of control while he goes about his primary task of promoting the Bush economic agenda. The show goes on.