Fed Hints Greenspan Will Exit Jan 31 As Planned

WASHINGTON – The Federal Reserve dropped a clear hint on Friday that Chairman Alan Greenspan (search) will retire on Jan. 31, ending talk he may stay on longer and reinforcing market concern that time is running out to name a successor.

The Fed said its first meeting of 2006 will take one day rather than two to avoid spanning the terms of two chairman. The Federal Open Market Committee (search) will now meet on Jan. 31, instead of gathering for two days, on Jan. 31 and Feb. 1, as it generally does in its first meeting of the year.

Greenspan's term ends Jan. 31 and he has told associates that he would go on schedule.

But there has been persistent speculation the 79-year old may remain in office beyond that date, for instance if a replacement was not ready to take over in time. The Fed's announcement appeared to rule this out.

"This schedule change avoids a meeting that spans the terms of two chairmen," it said, adding that Greenspan would attend the January 31 meeting.

The decision reinforces a sense among Fed watchers that the White House must work fast to find an heir to Greenspan, who commanded the Fed for 18 years with such skill that financial markets fret he could prove an impossible act to follow.

Markets are preoccupied at the moment with high oil prices and the impact of Hurricane Katrina on U.S. growth and the Fed's interest rate policy. But once these topics fade, the issue of who will be Greenspan's successor will assert itself as a trading factor.

"This is likely to become a much bigger issue as we near the end of the year," said Lynn Reaser, chief economist at Bank of America Capital Management in Boston.

Three names lead the list of likely candidates to take over — Glenn Hubbard (search), a past adviser to President Bush; Harvard economist Martin Feldstein (search); and former Fed Governor Ben Bernanke (search), who now is a White House adviser.

But no one has emerged as a clear front-runner and the White House may yet decide to select someone from Wall Street or industry, while Fed Board Governor Donald Kohn (search) could prove the insiders' choice if Greenspan gets a big say.

Financial markets are naturally wary about a change in leadership at the U.S. central bank, particularly since it comes at a critical juncture for monetary policy.

The Fed has said it expects to continue a 15-month campaign of raising short-term interest rates at a measured pace, although the devastation from Hurricane Katrina (search) has some investors betting it might pause after its next hike, at 3.75 percent.

Whatever the outcome of that debate, the first quarter of next year will be an even more crucial period than usual for the bank to plot and communicate its monetary policy path.