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The Journal Gazette

Wednesday, March 16, 2016 12:53 am

As crucial decisions loom, Fed sees turnover

Ylan Q. Mui | Washington Post

WASHINGTON – There will be a new face at the Federal Reserve’s policy-setting meeting in Washington this week, the first of a string of turnovers as the central bank prepares for the next phase of the nation’s economic recovery.

Patrick Harker will take a seat at the Fed’s 27-foot mahogany table as president of the Federal Reserve Bank of Philadelphia. Harker was picked for the job in March and took his post July 1. He replaces Charles Plosser, who had led the regional bank for nearly a decade and was an outspoken critic of the Fed’s easy-money stance.

Harker was a member of the Philadelphia Fed’s board of directors and president of the University of Delaware. He will not have a vote on the Fed’s policy-setting committee until 2017. The Fed’s 12 regional presidents rotate seats on the committee, while the central bank’s board of governors are permanent members.

But whether they have an official vote or not, all of the Fed’s top brass participate in the committee’s discussion of the appropriate level of interest rates – and the debate will likely be exceptionally vigorous over the next year.

Monetary policy is at a crossroads. Nearly seven years after the financial crisis, the American economy finally seems to be righting itself again. For the Fed, that means the end of the extraordinary measures it has taken to support the recovery. Chief among them was slashing its target for the influential federal funds rate all the way to zero.

Many of the officials who responded during the darkest hours of the crisis have since moved on, including then-Chairman Ben Bernanke. His second-in-command, Janet Yellen, is now at the helm of the Fed, and there already has been significant turnover within the top ranks – with more still to come.

The challenge facing this new guard will be to return the fed funds rate to a more normal level without derailing the recovery in the process. Yellen has said she expects the Fed to raise its target interest rate from zero later this year.

Whether the central bank will welcome more new faces before then remains uncertain.

President Barack Obama last week nominated University of Michigan economist Kathryn Dominguez to the Fed’s board of governors. The president early this year had also tapped Allan Landon, chief executive of the Bank of Hawaii, to serve on the board. The nominees must be confirmed by the Senate.

Meanwhile, the Federal Reserve Bank of Dallas is still seeking a new leader after Richard Fisher retired in March. Fisher was also a vocal critic of central bank policy.

Change is also coming to the Minneapolis Fed. President Narayana Kocherlakota, who has called for more aggressive support for the economy, will leave his position this year to join the faculty at the University of Rochester.