Alan Greenspan, the former chairman of the US Federal Reserve and a well-known specialist on interest rate policy, has been roped in as a consultant by the operator of the world’s biggest bond fund, the Allianz-owned Pacific Investment Management, Pimco. In a major triumph for Pimco, whose bond portfolios are extremely sensitive to interest rate policy, Greenspan will communicate once a quarter with Pimco executives on economic issues, including offering his private outlook about interest rate policy at the US central bank.
This is the first appointment held by Greenspan since retiring as Fed chairman in February last year, when he was succeeded by Ben Bernanke. His consulting firm, Greenspan Associates LLC, is still searching for other private sector clients, even though none that compete with Pimco. On the other hand, he has already agreed to provide periodic advice to the UK Treasury.
Even though his speeches and comments have generally been delivered to private audiences, they have nonetheless made headlines and moved markets. In February this year, he suggested that the US was at risk of slipping into recession, comments which were widely blamed for playing their part in stock market crumbles worldwide. Apparently, public comments he has made in the wake of his departure have rattled markets and irritated US authorities. But for the latest assignment Greenspan has made it clear that his comments to Pimco would not be released into the public domain.
The Wall Street Journal has reported that the former head of interest rates policy at the world’s biggest economic power will correspond with the Pimco executive through conference calls and e-mails and hold quarterly strategy sessions with the executive. According to the deal, the man who steered the Federal Reserve for 18 years and who still has the power to move markets will hold a quarterly meeting with senior executives of Pimco, the $680 billion bond-dominated mutual fund.
Economists are of the view that if Greenspan’s privately expressed views on Fed policy were to leak into the public, they could further undermine Bernanke. They further argued that Greenspan, who was famously enigmatic during his time as Fed chairman, can afford to be more direct in his views about the economy now. Bernanke’s role dictates that he must be guarded to avoid alarming the market.
The financial arrangement of the contract has not been made public yet. Greenspan was approached more than a year back by Pimco, which concluded the agreement this week. The company has not disclosed the length of the agreement, or any details about fees. However, Greenspan’s salary in 2005, his last full year at the Fed, was $180,100. The deal would see Greenspan teaming up with Pimco’s boss, Bill Gross, one of America’s most respected commentators on the bond market.
