Fed chief Greenspan feels the heat

FEDERAL Reserve chairman Alan Greenspan's power to influence American politics has never been greater, but his high profile has also engendered some high-level criticism from politicians who do not like what the world's most important central bank chief has to say.

The final version of the $75bn (£52bn) economic stimulus package is likely to have Greenspan's imprint. The Senate, which will take up the Bill next week, is expected to remove corporate tax breaks favoured by President George Bush but which Greenspan cautioned against.

Some conservative politicians hoping to push tax cuts are angered the Fed chief has been so free with his opinion on fiscal issues outside the central bank's domain. Greenspan's advice carries great weight with the majority in Congress, say analysts, in part because Wall Street sets so much stock by his view.

Wall Street's confidence in the stimulus package's ability to spur US economic activity without permanent damage to government balance sheets depends a lot on Greenspan's reaction. Congress knows this. 'When Greenspan talks, Congress jumps,' said Joe Lieber, analyst with Washington Analysis. 'What he says about the economy and its need for what kind of stimulus has a very real impact.'

The Fed chairman's increasing political activity has sparked controversy. Several conservative politicians are furious at him for pouring cold water on a capital gains tax cut and blasted him for meddling in affairs they say should be decided by publicly-elected officials.

Greenspan is an advocate of lower capital gains taxes but in his latest testimony he said the evidence does not show there is an immediate boost to economic growth, which is the goal of the stimulus package. One senior Senator, deriding Greenspan's frequent forays beyond the Central Bank, told the New York Times he half expected the Fed chairman to show up alongside New York Mayor Rudolph Guiliani to lead the city's recovery effort. It was an unusually harsh public rebuke for a man used to accolades.

Analysts and economists say the Fed chief is giving critics plenty of ammunition as he applies his expertise beyond monetary policy. For example, Greenspan is heading the government panel that will hand out loans to airlines.

At first, Greenspan said it would not be advisable for him to be seen to be favouring one airline over another, but was persuaded to join the review board, though someone else may attend to represent his views.

Admirers say Greenspan's command of politics and economics have made him indispensable in reassuring Wall Street and in guiding Congress in the wake of the 11 September terrorist attacks. The downside is that it has made him more vulnerable to political attack. 'Some of the criticism is not fair,' said Lieber. 'Politicians seek his advice but then criticise him for being involved.'