Vice Chairman of Fed to Retire, Letting Obama Reshape Board

Published: March 1, 2010
WASHINGTON — The vice chairman of the Federal Reserve announced on Monday that he would retire in June, giving President Obama an expanded opportunity to put his stamp on the central bank as it faces a difficult balance between heading off inflation and addressing high levels of unemployment.

The departure of the vice chairman, Donald L. Kohn, a 40-year Fed veteran, means Mr. Obama has three seats to fill on the Fed’s seven-member board of governors at a time when the central bank is weighing how aggressively to reverse the easy-money policy it pursued during the financial crisis and recession.

The vacancies are likely to spur debate over the Fed’s priorities. With unemployment near 10 percent and projected to remain high for years to come, there is sure to be pressure on the administration, especially from liberals, to nominate Fed governors willing to adhere not just to the central bank’s mission of price stability but also its mandate of full employment, a goal that has effectively taken a back seat to inflation fighting over much of the last three decades.

“Any incumbent president wants to see the economy grow,” said Alan S. Blinder, a professor of economics at Princeton who was vice chairman of the Fed from 1994 to 1996. “It doesn’t matter whether he’s a Republican or a Democrat. So I wouldn’t be surprised if the Obama administration is looking for someone more dovish on inflation.”

Mr. Kohn, an influential cen-trist, was appointed by President George W. Bush, as were the two most recent board members to leave, who tended to emphasize inflation fighting.

Henry W. Chappell Jr., an economist at the University of South Carolina and an authority on the Federal Open Market Committee, the Fed’s major policy-setting arm, predicted that the administration would choose nominees who hold the Keynesian belief that full employment does not necessarily return on its own after a recession and who are “willing to actively respond to prevailing economic conditions like the recession.”

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