WASHINGTON – Jeremy Stein, a member of the Federal Reserve Board, announced Thursday that he plans to resign next month to return to Harvard University, creating more turnover on the seven-member board.
In a letter to President Barack Obama, Stein said that he will resign effective May 28 and return to Harvard, where he had been an economics professor beginning in 2000. Stein had been on the Fed board since 2012. There had been speculation that he might leave given that he was facing a May deadline to decide whether to return to his tenured Harvard teaching post.
Currently, there are three Obama nominations pending before the Senate including Stanley Fischer, a former head of Israel’s central bank who Obama has nominated as vice chairman. Fischer would succeed Janet Yellen who in February became Fed chair, the first woman to hold the position in the Fed’s 100 year history.
Obama has also nominated Lael Brainard, who served as Treasury undersecretary for international affairs during Obama’s first term, and Jerome Powell, a Republican, who Obama has nominated for another term of the Fed board.
Obama will now need to select a replacement for Stein as well as a replacement for Elizabeth Duke, who left the board last year. The other departure from the Fed board was Sarah Bloom Raskin, who last month took over as deputy Treasury secretary.
While the departures have given Obama the chance to reshape the seven-member board, analysts expect the Fed’s basic approach is unlikely to change significantly. Yellen was a close ally and supporter of the efforts of former Fed Chairman Ben Bernanke to revive the economy following the Great Recession of 2007-2009 and Obama’s picks for the board vacancies have endorsed that approach.
Stein, 53, had been appointed by Obama to fill an expired term that ends on Jan. 31, 2018. Fed board terms are for 14 years or for the remaining portion of an unexpired term.
In a statement, Yellen praised Stein for “his understanding of monetary policy and markets as well as his expertise in banking and financial regulation.”
Stein had argued in his speeches that the Fed needed to be alert to threats of financial instability that could be caused by the central bank’s easy money policies.
Dana Saporta, an economist for Credit Suisse, said that in losing Stein, the Fed is losing its leading voice “in the call for policymaker vigilance against financial excesses.”
The Fed began trimming its monthly bond purchases in December and in March, under Yellen’s leadership, approved a third $10 billion reduction, bringing new purchases down to $55 billion in April. Analysts expect the new bond purchases will be phased out by the end of this year.
While the new purchases will be phased out, the Fed will still have a record level of bond holdings above $4 trillion and Fed officials have said they expect to keep bond holdings at that level for the foreseeable future. Those holdings are designed to keep long-term interest rates low to spur economic growth.
Yellen, in a speech Monday, sent a signal that the Fed will keep a key short-term interest rate at a record low near zero for a considerable period of time because of her belief that the labour market is still a long way from being healthy. The Fed’s benchmark for short-term rates has been near zero since December 2008.