WASHINGTON — Federal Reserve Vice Chairman Donald Kohn's decision to step down at the end of June gives President Obama a chance to put a bigger imprint on the central bank.
Kohn, the Fed's second-highest ranking official, has played a major role in shaping the Fed's strategy in fighting the worst financial and economic crises to hit the country since the Great Depression.
His departure will open up a third seat on the seven-member Federal Reserve board in Washington. Board members are picked by the president and must be confirmed by the Senate.
The president will have a delicate task before him. He will need to pick candidates who appeal to Democrats and aren't objectionable to Republicans. All this in an election year, when many Americans are upset with Obama about Wall Street bailouts, high unemployment and rising home foreclosures.
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Against that political backdrop, Fed Chairman Ben Bernanke had to wage a bruising battle in the Senate to garner enough support to secure a second four-year term. The 70-30 Senate vote in late January was the closest ever for the post.
The battle over Bernanke's confirmation was seen as a test of central bank independence, a crucial element if the Fed is to carry out unpopular but economically essential policies.
Its decisions on interest rates can have immense consequences, from the success or failure of the largest companies to the typical homebuyer's ability to get an affordable loan to the price of cereal at the grocery or gas at the corner station.
Besides tapping Bernanke — first appointed by George W. Bush — for a second term, Obama picked Daniel Tarullo, a former Georgetown law professor, to serve on the Fed. The Fed's other members — Kevin Warsh has Wall Street experience and Elizabeth Duke was a banker — were picked by Bush. There are two vacancies on the board.
Fed watchers suggest that Tarullo could be promoted to vice chairman, but he is said to want to concentrate on his role of being the Fed's point person on overhauling the nation's financial structure. Others mentioned include Obama's top economist Christina Romer, chair of the White House's Council of Economic Advisers; CEA member Austan Goolsbee; and Janet Yellen, president of the Federal Reserve Bank of San Francisco. Or Obama could opt for Republican Greg Mankiw, economics professor at Harvard.
The administration is expected to name Kohn's replacement before he leaves.
As has been the case with filling other openings in the Obama administration, potential candidates for the Fed openings might be discouraged by the intense scrutiny that comes with the vetting process as well as the likelihood of a pay cut.
A veteran of the Fed, Kohn first joined as an economist in Kansas City in the early 1970s. He has been a member of the Fed board since 2002, and a confidante of Bernanke as well as his predecessor, Alan Greenspan.
"He will be greatly missed," Bernanke said.